Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Oral Answers to Questions — FOREIGN AND COMMONWEALTH AFFAIRS

Nepal

Mr. David Atkinson: asked the Secretary of State for Foreign and Commonwealth Affairs if he has had any recent discussions with the Nepalese Government about matters raised during his visit to Nepal in February; and if he will make a statement.

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Tim Eggar): My right hon. and learned Friend has had no recent discussions with the Nepalese Government.

Mr. Atkinson: Does my hon. Friend share my dismay over the fact that since our right hon. and learned Friend met his Nepalese counterpart in Nepal in February there have been further reports of the persecution of Christians, including the most humiliating and inhuman treatment of two Catholic nuns? In view of this, will my hon. Friend now warn the Nepalese Government that it cannot be long before public opinion in this country, and in the United States in particular, will be pressing to end all aid to Nepal until such time as the persecution of Christian citizens comes to an end?

Mr. Eggar: We are aware of reports of the incident to which my hon. Friend refers and we are seeking further details. As he is aware, we share his concern about the reports of ill-treatment of Christians in Nepal. My right hon. and learned Friend mentioned our concern to the Nepalese Government during this visit in February.

Mr. Alton: Given that those nuns and priests were dragged through the streets, beaten, and, in the case of the nuns, stripped naked by Nepalese policemen, does the Minister agree that it is about time that Her Majesty's Government stopped turning a blind eye and took up with the Nepalese Government this grave issue of the violation of human rights?

Mr. Eggar: As I have already said to my hon. Friend the Member for Bournemouth, East (Mr. Atkinson), we are seeking further details of the incident to which the hon. Gentleman refers. I remind him that Nepal is a sovereign independent country, and we have no locus standi to intervene on behalf of Nepalese citizens.

NATO Foreign Ministers

Mr. Fallon: asked the Secretary of State for Foreign and Commonwealth Affairs when he next expects to meet the other North Atlantic Treaty Organisation Foreign Ministers.

The Secretary of State for Foreign and Commonwealth Affairs (Sir Geoffrey Howe): I next expect to meet other NATO Foreign Ministers collectively at the North Atlantic Council ministerial meeting in Brussels in December.

Mr. Fallon: Does my right hon. and learned Friend agree that one of the primary interests of the Soviet Union is to invent and exploit potential divisions between members of the Alliance—for example, this country and the United States? Is it not highly irresponsible of the shadow Foreign Secretary, when in Moscow, to lend himself to a conspiracy against the membership and strength of the Western Alliance?

Sir Geoffrey Howe: If I had to account for all the activities of the right hon. Member for Leeds, East (Mr. Healey), I should spend a great deal of time trying to defend him in vain. I hope that he took the opportunity when he was in Moscow to drive home to the Soviets the need for them to reach out for a balanced agreements on arms control.

Mr. Winnick: Is it the intention of NATO Ministers to send congratulations to the newly elected President of Austria? Can the Foreign Secretary—

Mr. Speaker: Order. What has this matter to do with the North Atlantic Treaty Organisation?

Mr. Winnick: I should like to know from the Foreign Secretary whether the NATO Foreign Ministers believe that it is desirable that someone who, at best, prostituted himself for the Nazi war machine and at worst actually gave orders that led to countless deaths should have been elected as President of Austria. Why did the British Government send congratulations? Does the Foreign Secretary understand the deep concern among many people in Britain over what has happened in Austria?

Sir Geoffrey Howe: I admire the hon. Gentleman's capacity to stretch the rules of order to their limit. It is not my intention, speaking on behalf of NATO Foreign Ministers, to answer his question. Each Government have responded to the outcome of the democratic election conducted in Austria on the basis of their judgment of the facts.

Sir Peter Blaker: What does my right hon. and learned Friend believe would be the reaction of his NATO colleagues if it were to be announced that this country was intending to give up unilaterally its independent strategic nuclear deterrent and to expel American nuclear bases from this country?

Sir Geoffrey Howe: I have no doubt at all that my NATO colleagues would react with shock and astonishment at such an announcement, because it would cast away the effective foundation of the defence of this country as well as the effective foundation for our playing a realistic part in the arms control debate.

Mr. Faulds: Is not one of the most damaging influences at play in relation to the success of NATO the American


President, who pursues policies that damage the organisation, such as the rejection of SALT 2, the use of British bases for action outside NATO and his general attitude of disregard for European interests?

Sir Geoffrey Howe: I certainly cannot join the hon. Gentleman in taking such a view of these matters. It would be welcome if he were to take the same kind of critical attitude of the leadership of the Soviet Union on matters of this kind. In fact, the United States leadership has in the last few years been taking steps to advance the process of arms control, and we have continued to emphasise the importance that we attach to that.

Mr. Temple-Morris: Will my right hon. and learned Friend firmly take on board the fact that it is not just a question of the Soviet Union exploiting divisions? When he meets the Foreign Ministers, will he firmly express the concern on both sides of this House and in the country over the Washington Administration's attitude towards the SALT 2 treaty, and will he firmly register the great concern in western Europe about that fact?

Sir Geoffrey Howe: As was made clear by my right hon. Friend the Prime Minister last week and in the discussions in Halifax at the North Atlantic Council, the Government, together with the other Governments of western Europe, attach importance to continued compliance with SALT 2 on both sides. It was for that reason that we welcomed the announcement by the President that he was disposing of the submarines in compliance with that treaty and expressed the hope that the Soviet Union would respond as necessary to enable the treaty to continue to he observed and complied with on both sides.

Mr. Healey: Will the Foreign Secretary inform the United State Secretary of State that the units of the Alliance can be weakened only when the American Administration vetoes an agreement on human contacts which has already been reached by his own officials and by all European members at the Berne conference, and when President Reagan threatens to violate the SALT 2 restrictions on armaments after all his allies explicitly advised him not to when asked for their opinion a few weeks earlier? Does he not agree that the SALT 2 agreement and the abortive agreement on human contacts are precisely the sort of balanced agreements that the hon. Member for Darlington (Mr. Fallon) claims to want and which I pressed for when I was in Moscow the other day?

Sir Geoffrey Howe: I do not doubt the importance of seeking to achieve agreement, if possible, in the course of meetings such as the Berne meeting on human contacts. It must be a matter of regret that it was not possible to reach agreement along the lines originally foreshadowed.
One must take a slightly different view of the SALT 2 agreement by saying that it is surely right to welcome the decision of the United States to stay within the SALT 2 constraints by breaking up the Poseidon submarines, before going on—as I certainly do—to express the hope that it will continue to stay within the SALT 2 constraints to which the United Kingdom attaches importance and on which our views have been made very clear to the United States.

UN Expenditure

Mr. Phillip Oppenheim: asked the Secretary of State for Foreign and Commonwealth Affairs if he has held

discussions recently with Senor Perez de Cuellar concerning United Nations expenditure in 1986; and if he will make a statement.

Mr. Eggar: My right hon. and learned Friend raised the question of United Nations finances with the Secretary-General during his official visit to this country from 13 to 15 May. He emphasised the need for a sustained effort to achieve economies and recalled our own record of paying our contributions promptly and in full.

Mr. Oppenhiem: At a time when the United Nations faces its worst financial crisis in its history, how can the continued publication of the controversial PINS — political information news service — report be justified when it costs almost £1 million a year?

Mr. Eggar: I am sure that these and other aspects of information will be examined both by the Secretary-General in his continuing efforts to reduce expenditure within his control and by the Group of 18, which is looking at the longer term implications for United Nations finances.

Mr. Tom Clarke: Does the Minister accept that if the United Nations did not exist it would be necessary to invent it? Does he also accept that such flaws as there may be mirror an imperfect world and that, while we seek to improve it, we ought to condemn irresponsible comments, which do nothing but harm to an outstanding international body?

Mr. Eggar: Her Majesty's Government are, of course, committed to continued membership of and activity in the United Nations both as an ordinary member and as a member of the Security Council.
As regards finances, the hon. Gentleman must be aware that it cannot be right for the 106 lowest contributing countries, which in total pay 1·83 per cent. of the budget, to force through a budget against the overwhelming view of the major contributors, which, beween them, pay about 70 per cent. of the budget. Reform is necessary.

Mr. Beaumont-Dark: Does my hon. Friend agree that the United Nations could increase its reputation and its finances by releasing the records of 40,000 Nazi criminals, which are hidden in its vaults? Does he also agree that it is slow to do that because of the proper implication of an ex-Secretary-General of the United Nations? Is it not time that all these records were revealed so that this evil can be cleared up one way or the other?

Mr. Eggar: As my right hon. Friend the Prime Minister told the right hon. Member for Manchester, Wythenshawe (Mr. Morris) on 19 May, it would not be appropriate for us to consider seeking from the United Nations copies of documents relating to Dr. Waldheim's wartime activities before the Ministry of Defence search of military records is complete.

Mr. Foulkes: I welcome the Minister's commitment to Britain's continued membership of the United Nations, but will he confirm that the Government totally reject all the calls from the Right wing in his party and in some of the media, inspired again by the Heritage Foundation, to follow withdrawal from UNESCO by withdrawal from some of the other agencies of the United Nations? Will the Minister today pay a tribute to the United Nations and its agencies for the excellent work that it has done in its lifetime for peace and development in the world?

Mr. Eggar: Developments within UNESCO over the past few months have served to confirm the wisdom of our decision to withdraw at the end of last year. There has been no evidence recently of movement towards a central reform within UNESCO. In relation to the UN system as a whole, of course we are committed to continued membership.

Pakistan (Drug Trafficking)

Mr. Spencer: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on what action is being taken jointly with the Government of Pakistan to control drug trafficking.

Mr. Eggar: We share with the Government of Pakistan a firm commitment to tackle the problem of drug production, trafficking and abuse. We have close and effective co-operation m many aspects of drug enforcement, through Customs and other channels. Over recent years Pakistan has been the main recipient of our drugs-related assistance worldwide.

Mr. Spencer: Can my hon. Friend confirm the efficacy of the co-operation between the two countries in bringing to book people engaged in this vile trade? Can he tell the House whether there are yet stationed in Pakistan, as in some other countries, representatives of British Customs and Excise? If not, will he work towards that end?

Mr. Eggar: I can indeed assure my hon. and learned Friend of the considerable efforts that the Pakistan Government, from the highest level downwards, are taking to eradicate drug production and trading. Officials from British Customs have been in Pakistan for some considerable time.

Mr. Corbett: Has the Minister seen reports today of a warning by Mr. Colin Hewitt, the co-ordinator of the national drugs intelligence unit, that the drug abuse problem is worsening? Against that background, and given the regrettably leading role which evil men in Pakistan play in the continuation of this vile trade, may we have an assurance that we will redouble our efforts and pressure on the Pakistan Government to shut down the supply routes?

Mr. Eggar: We are deeply concerned about the increasing problems of drug abuse within the United Kingdom, and worldwide. We do not need to put such pressure on Pakistan, because the Pakistan Government, of their own volition and with our assistance, are taking considerable measures throughout the country to assist in cutting down the growth of the heroin trade in particular.

Mr. Rathbone: Can my hon. Friend confirm the Government's success in placing Customs officers in India, through which almost all of the Pakistani drugs products are smuggled on their way to this country?

Mr. Eggar: As my right hon. and learned Friend told the Select Committee on Home Affairs on 4 June, following his discussion with Mr. Gandhi, the Government of India have agreed in principle to our proposal to post drugs liaison officers in New Delhi and Bombay. In passing, I pay tribute to my hon. Friend for his work in drawing attention to the problems of drug abuse in this country. Administrative arrangements are now in train with a view to early postings of the drugs liaison officers.

Mr. Anderson: Can the Minister say exactly when the two drugs liaison officers for New Delhi and Bombay will be in post? Do the Government accept the view of the Drug Enforcement Agency in the USA that many of the drugs going into Pakistan and out through Bombay come via Afghanistan and refugees who use herion as a currency for arms? If the Government accept that, was that matter raised when the Prime Minister welcomed Mr. Abdul Hag, the Afghani rebel leader, earlier this year?

Mr. Eggar: We are discussing with the Government of India the precise arrangements for the posting of the two drugs liaison officers. We have identified those officers and we hope to have them in post in the near future.
There is some evidence that some of the drugs that reach the United Kingdom are of Afghan origin. Obviously we are doing what we can, through our cooperation with the Government of India and now with Pakistan, to stop the flow of drugs from Afghanistan. However, our ability to act within Afghanistan is extremely limited, as the hon. Gentleman must be aware.

United Nations Special Session on Africa

Mr. Burt: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on his visit to the United Nations Special Session on Africa.

Sir Geoffrey Howe: I was glad to be able to attend the United Nations Special Session on Africa. Her Majesty's Government greatly welcome its positive outcome. The final resolution, adopted by consesus, represents a commitment by all concerned to work together for sustained economic development based on realistic policies.

Mr. Burt: I thank my right hon. and learned Friend for that statement. May I offer him the pleasant duty, I hope, of sharing with the House the general satisfaction with the award given yesterday to Mr. Bob Geldof?
Can my right hon. and learned Friend reassure the nation that the patient and generous work carried out by this country over many years on overseas development will continue, whether or not the public conscience has been stirred, with the general aim of improving the conditions of life for all Africans?

Sir Geoffrey Howe: I am glad to acknowledge the importance of both the points made by my hon. Friend and to commend the fact that the total British aid going to Africa through bilateral and multilateral channels has increased from £447 million in 1982 to about £570 million in 1985. That is in addition to the substantial measures taken by way of cancellation of aid debts and support for the International Development Agency programme.
Perhaps the most encouraging aspect is the extent to which the report approved by the General Assembly last week stresses so strongly the acknowledgement by the African Governments of the importance of the positive role of the private sector in the development of Africa.

Mr. Cambell-Savours: What is the Foreign Secretary's response to the comments of Sir Robert Geldof, who described the right hon. and learned Gentleman's speech at the United Nations illustrating Britain's position on help for those in need in Africa as a lot of old crap?—[Interruption.]

Mr. Speaker: Order. I know that Mr. Geldof said that, but it is not a very elegant word to use in this Chamber.

Sir Geoffrey Howe: I regard the use of such language by Mr. Geldof as unhelpful, just as it is even more unhelpful on the part of the hon. Gentleman. It is only one aspect of the character of Mr. Geldof that has made him widely admired around the world for the part that he has played.

Mr. Wilkinson: Has my right hon. and learned Friend had contacts with Mr. Bradford Morse, the head of the Special Programme for Africa in the United Nations, or the United Nations High Commissioner for Refugees, about the large influx of refugees into Somalia owing to the intolerable programme by the Ethiopian authorities of corralling people into special villages?

Sir Geoffrey Howe: That is one of the matters that my right hon. Friend the Minister for Overseas Development has constantly in mind in the contacts that he has in that area.

Soviet Union (Human Contacts)

Mr. Lawrence: asked the Secretary of State for Foreign and Commonwealth Affairs when he next expects to meet the Soviet Foreign Minister; and whether he will raise the issue of human contacts in the light of the discussions at the conference on security and co-operation in Europe in Berne.

The Minister of State, Foreign and Commonwealth Office (Mr. Tim Renton): We hope that Mr. Shevardnadze will be able to visit the United Kingdom in the near future. My right hon. and learned Friend has raised issues of human contacts and human rights with the Soviet Foreign Minister in the past and will continue to do so. These issues were also raised during the recent visit to the USSR of the Inter-Parliamentary Union delegation led by my noble Friend the Lord President.

Mr. Lawrence: Is my hon. Friend aware that the Soviet authorities still refuse to allow thousands of Jews who have applied to leave the Soviet Union to join their families to do so? Is he further aware that in the past week yet another Hebrew teacher — Aleksy Magarik — has been sentenced to three years in a labour camp following the finding of 6g of cannabis which was planted in his luggage? Does my hon. Friend agree that if the Soviet authorities think they can blatantly disregard their solemnly entered into international undertakings on human rights and still convince the West that if they enter into solemn and binding undertakings for arms reduction it will believe them, they had better think again?

Mr. Renton: I agree with what my hon. and learned Friend has said. It is true that the Soviet Union's record on permitting Jewish emigration is unsatisfactory and that there are no signs of it improving this year. At the CSCE in Berne it was quite clear that Soviet Jewry was a great stumbling block, in that the Soviet delegation was anxious to avoid any recommendations that had a direct bearing on Jewish emigration. At the same time, the West made it clear that it would not agree to a final document which excluded Soviet Jews.

Mr. Beith: Will the Minister follow up the efforts made by the delegation in Moscow to convince the Soviet leadership that concern for civil rights and the rights of religious groups, Christians as well as Jews, is not a propaganda issue so far as the West is concerned, but an

issue of real concern to many citizens in the democratic West? Will he take the opportunity to try to convince the Soviet leadership that it would be in its interests to improve its record on that matter?

Mr. Renton: Yes. We have done so many times, and we shall continue to do so. It is obviously right that the question of human rights is an integral part of implementing the Helsinki final act. It is tragic that I often hear praise from the East for the value of the Helsinki accord, but at the same time we see every chapter being flouted by it.

Mr. Marlow: My hon. Friend and the House are rightly concerned for the human rights of Jews as for everybody else. Will he point out to the Israeli Defence Minister that it would be more helpful to the human rights of Israelis if they were concerned for the democracy of Arabs as well as for Jews?

Mr. Renton: On many occasions we have made it plain to the Israeli Government that we wish to see a total withdrawal from southern Lebanon, where the rights of a number of Palestinians are being badly thwarted. My right hon. Friend the Prime Minister, when she was in Israel recently, raised strongly with the Israeli Prime Minister the lack of rights of Palestinians in the occupied territories.

Mr. Janner: To revert to the original question, may I thank the Government for their steps to keep this matter before the Soviet Government. I thank also the all-party delegation that went to Moscow. Will the Government please continue to press for the release of people such as Ida Nudel, Alexander Vladimar Slepak, Alexander Lerner and other winners of the annual award of the all-party parliamentary committee for the release of Soviet Jewry? Will the Government say how much we care about these people and their right—which has not been granted—to leave the Soviet Union in accordance with the Soviet Union's constitution and the Universal Declaration on Human Rights?

Mr. Renton: I very much agree with the hon. and learned Gentleman's thanks to the parliamentary delegation that recently went to Moscow for the manner in which it raised the subject of human rights with Mr. Gromyko and Mr. Gorbachev. Clearly the delegation took every opportunity to raise the subject of those distressing cases. We shall continue to raise not only the cases mentioned by the hon. and learned Gentleman but the split family cases, which concern British citizens in this country. As in the past, we shall continue to do that at every possible opportunity.

Mr. George Robertson: Will the hon. Gentleman accept that the Opposition believe as strongly as he does in civil and human rights, whether in Eastern bloc countries or any Western country? Does he agree that the unilateral vetoing by the United States and other member states of the CSCE — the Helsinki group — of an agreement in Berne which would have positively improved the ability of people to leave the Soviet Union does little or nothing to help the cause of those in the Soviet Union or other countries who saw the light at the end of the tunnel being denied by the impromptu action of the United States Government?

Mr. Renton: I note what the hon. Gentleman has said. The United Kingdom delegation was prepared to give its agreement to a document which was, in effect, a


compromise reached at the end of the Berne meeting. In fairness, it must be said that the view of the United States delegation was that the recommendations in the compromise document did not go far enough, given the Soviet failure to comply with existing commitments. In some cases the United States delegation thought that the compromise document was a step backwards from the commitments made in the Helsinki final act. On that basis, there was no agreement on the document.

African National Congress

Mr. Skinner: asked the Secretary of State for Foreign and Commonwealth Affairs when and where Government officials will next meet the African National Congress.

The Minister of State, Foreign and Commonwealth Office (Mrs. Lynda Chalker): As my right hon. and learned Friend told the House on 9 April, contacts between officials and the ANC are continuing as appropriate. The central purpose of such contact is to bring home to the ANC the importance of a suspension of violence on all sides in South Africa in order to promote a constructive dialogue.

Mr. Skinner: Now that the Eminent Persons Group has been bombed out of South Africa by the Botha regime's actions a few weeks ago against three Commonwealth countries, why do not the Government, when they sit down at ministerial level with the ANC—as they should do—call for an unconditional amnesty for Mandela and take a lead on economic sanctions against that unhappy country to stop all the bloodshed and suffering?

Mrs. Chalker: We have unreservedly condemned the raids on the capitals of the three independent Commonwealth countries, especially at a time when the Eminent Persons Group was making progress. We have called for the consideration of dialogue among all parties. It is not for me this afternoon, before publication of the report of the Commonwealth Eminent Persons Group, to make any comments on it. We shall consider the report with the utmost care.

Mr. Campbell-Savours: Apathy.

Mrs. Chalker: There is certainly no apathy in the Government's response.

Mr. Jackson: Does my hon. Friend recognise that the ANC is the oldest political party in South Africa, that it will play a crucial part in the country's future and that it is important that Britain should be in a better position to influence its thinking?

Mrs. Chalker: We have had official-level contacts where appropriate to be in a better position to influence the ANC's thinking. One feature of the ANC is that, although it is made up of people with many different views, if the Communists take it over, Nationalists will be denied the means of political expression. That is why we have called for an end to apartheid. That is why we have supported the work of the Eminent Persons Group, which has gone on so thoroughly over six months.

Mr. Maclennan: Does the Minister agree that in order to promote dialogue between members of the ANC and the authorities in Pretoria the Government should contemplate introducing a ban on commercial air flights

to South Africa and should co-ordinate action on that front with other members of the Commonwealth and European Community?

Mrs. Chalker: In our contacts with the ANC and the South African Government we have always sought to bring home to them the fact that continuation of the policies that deny rights to black South Africans, including the lack of freedom for Nelson Mandela, are to be abhorred. Specific bans, such as the hon. Gentleman mentioned, are for consideration in the light of the report of the eminent persons group. We have not committed ourselves and will not do so until the report has been published. It will be published tomorrow and it then needs to be considered, as has been agreed, between the Heads of Government, at the beginning of August.

Mr. Winnick: Is it not a fact that the Eminent Persons Group has come to the conclusion that there is no alternative, in view of what is happening in South Africa, but to apply sanctions? When will the British Government realise that it is not good enough to say that we are against apartheid, and could instead recognise that effective actions must be taken to persuade the South African Government to act in the direction that the majority of hon. Members, including a number of Conservative Members, want? There must be fundamental changes in South Africa, and the longer that is delayed the more bloodshed and tragedy there will be in that country.

Mrs. Chalker: As I and my right hon. and learned Friend the Secretary of State have said on many occasions, we have consistently condemned all the things that the hon. Gentleman has condemned. We have also said that we have argued against collective economic boycotts and things of that kind because experience has shown that they do not work. The question whether any further measures can be taken, in addition to those measures that the United Kingdom has already implemented over the years, has to be considered in the light of experience and of the report. We do not yet have the report.

Mr. Soames: Is my hon. Friend aware that the imposition of sanctions is likely to produce more bloodshed and more anger? In the townships of Uitenhage and New London unemployment is already running at 50 per cent. What possible advantage could accrue to those we wish to help by the imposition of sanctions?

Mrs. Chalker: There is no doubt that there are many views on that subject. We certainly know that sanctions as applied in the past have not given a clear outcome. We wanted to ensure, and continue to do so, that the actions we have taken, such as the arms embargo, the Gleneagles agreement, the European Community measures decided at Luxembourg, the Nassau measures and the stepping up of our own policy work. Those things do work and we should consider only measures that will work. Otherwise, as my hon. Friend said, we shall worsen the situation still further.

Mr. Anderson: When we take over the presidency of the EEC Council of Ministers on 1 July, will we still maintain an objection in principle to meeting the ANC at ministerial level, although we have agreed that other Presidents of the EEC Council should meet them? If we do so will not the British public and our allies not conclude that we are prepared only to engage constructively in dialogue with white South Africans and are not prepared constructively to engage in dialogue with black South Africans?

Mrs. Chalker: The hon. Gentleman's last remark is absolute nonsense. Of course we are prepared constructively to engage in dialogue with black South Africans. We have been working behind the scenes for a dialogue between all the peoples of South Africa and that is what the Commonwealth Eminent Persons Group has worked so hard for. When we take up the presidency of the European Community we shall consider the measures that need to be taken at that time. I am sure that the discussion will go along such lines.

Mr. John Carlisle: Does my hon. Friend agree that the EPG's failure is partly because the Commonwealth Secretariat and its director general have been hand in hand with the ANC, which has no intention of pursuing peaceful reform in South Africa? Will she accept that the Government have no business discussing such matters with terrorists and that she would be better spending her time talking to moderate black leaders in South Africa, such as Chief Buthelezi?

Mrs. Chalker: The earlier part of my hon. Friend's supplementary question was wrong. We shall talk with the full range of black leaders in South Africa, and the best way of doing that must be left to the Government to decide.

Central America

Miss Boothroyd: asked the Secretary of State for Foreign and Commonwealth Affairs what further discussions are planned by the European Community Foreign Ministers concerning the situation in Central America; and if he will make a statement.

Mr. Eggar: There is regular discussion of Central America within European political co-operation. The 12 have acted five times this year to support the Contadora peace process, most recently before the Esquipulas summit of the five Central American Presidents on 24–25 May, when the 12 called for prompt signature and implementation of a comprehensive and verifiable agreement. The next meeting of Foreign Ministers is on 16–17 June.

Miss Boothroyd: May I urge the Secretary of State to use his forthcoming presidency of the Council to persuade the Community to speak with one voice in seeking the withdrawal of American funding of the Contras? Does he agree that the continued funding of the Contras' regime by the Americans is the greatest single obstacle to the signing of a peace treaty with the Contadoras?

Mr. Eggar: The United States Government have reaffirmed their support for a comprehensive, viable and simultaneous settlement that would answer all the 21 Contadora objectives. They did that on 22 May. We hope very much that Nicaragua will negotiate seriously to reach such an agreement.

Mr. Deakins: Can the Minister tell us one thing that has changed in Central America as a result of co-ordinated action by the member states of the EEC on this issue? Can he say whether, during our presidency, we shall be leading the EEC in opposition to a decision that is likely to be taken this year by the House of Representatives in favour of military aid to the Contras?

Mr. Eggar: The solution to the problems of Central America rest with the Contadora countries and the Latin America support group. Our role within the EEC, as

President of the EEC and as the United Kingdom Government, is to support peace processes, and we shall continue to do so.

Mr. Foulkes: Will the Minister answer the key question? As the Government are on record as condemning all state-sponsored terrorism, will they condemn the United States Government for their sponsorship — state sponsorship — of the Contra terrorists in Nicaragua?

Mr. Eggar: As usual, the hon. Gentleman goes right over the top. The Government have consistently advocated negotiations rather than violence. We have advocated a balanced approach rather than the one-sided rhetoric that comes from Opposition Members. We believe that there should be a comprehensive solution to comprehensive problems.

Mr. Beith: If Nicaragua signs the proposals put forward by its neighbours and there is no change in the attitude of the United States, what will European Ministers do?

Mr. Eggar: The United States Government have stated clearly that they support the Contadora process. If Nicaragua signs an agreement, presumably the United States Government will support the agreement.

Afghanistan

Mr. Gregory: asked the Secretary of State for Foreign and Commonwealth Affairs what assessment his Department has made of the prospects for peace in Afghanistan, following the emergence of a new leader of the Communist regime in Kabul.

Sir Geoffrey Howe: This change of leadership in Afghanistan does not of itself improve prospects for peace. The only way to make progress is for the Soviet Union to withdraw all its troops, in accordance with successive United Nations resolutions.

Mr. Gregory: Does my right hon. and learned Friend accept that the appointment of the former head of the secret police as the leader of Afghanistan—a man who carried out an atrocious campaign of slavish acceptance of the Moscow line — will not be conducive to an acceptance of the present regime? Does he agree that the mere presence of over 100,000 Soviet troops in Afghanistan, which has led to tens of thousands of deaths and over 3 million refugees, should be of greater interest to the British Labour party than the anti-Western views that it pursues?

Sir Geoffrey Howe: I entirely agree with my hon. Friend the appointment of a former head of the Afghan secret police who so ruthlessly prosecuted the polices of the regime does nothing whatsoever to help the prospects of peace. He is even less acceptable to the Afghan people than his presecessor. It would be encouraging if the Opposition would devote half as much attention to the withdrawal of 118,000 Soviet troops from Afghanistan as they do to the question of Nicaragua.

Mr. Moynihan: Does my right hon. and learned Friend agree that no practical solution to the United Nations peace talks can be achieved without the involvement of the Mujahideen?

Sir Geoffrey Howe: It is certainly correct that any conclusion, which must involve the withdrawal of Soviet troops, must be acceptable to the Afghan people.

Chemical Weapons

Mr. Heathcoat-Amory: asked the Secretary of State for Foreign and Commonwealth Affairs if there has been recent progress at the Geneva disarmament conference in negotiations on chemical weapons.

Mrs. Virginia Bottomley: asked the Secretary of State for Foreign and Commonwealth Affairs when he next expects to discuss the Soviet capability in chemical weapons with a representative of the Soviet Government.

Mr. Renton: The conference on disarmament has been in recess since 25 April 1986 and resumed on 10 June. Progress so far this year has not been as rapid as we would have wished. My right hon. and learned Friend hopes to have a full exchange of views on a range of arms control issues, including chemical weapons, when the Soviet Foreign Minister, Mr. Shevardnadze visits London.

Mr. Heathcoat-Amory: Does my hon. Friend agree that an agreement to ban the production of these weapons without watertight verification would be useless? Will he press the Soviet Union to concede this inspection? Will he further stress that these awful weapons have already been used in the Iran-Iraq war? There is a danger of further proliferation without international agreement outlawing their production and deployment.

Mr. Renton: Yes, Sir. We hope to achieve a global verifiable ban on the production and stocking of chemical weapons. The question of verification is difficult, but we must try to make progress. The recent use of chemical weapons in Iraq demonstrates the danger of proliferation of these dreadful weapons.

Mrs. Bottomley: Is my hon. Friend aware that many people in this country supported the Government's decision to abandon our chemical warfare capability in the 1950s? Does he accept that there is now mounting anxiety over what we regard as the increasing chemical warfare capability of the Soviet Union? While I appreciate that no firm plans have been made for a meeting with the Soviet Foreign Minister, can outline what other contacts have been made with the Soviets on this important subject?

Mr. Renton: Yes. The stockpile of chemical weapons held by the Soviet Union, estimated at not less than 300,000 tonnes of nerve gas weapons, is a matter of serious concern. For that reason, and while we are awaiting Mr. Shevardnadze's visit, we are pleased that Mr. Issraelyan, the chief Soviet representative at the United Nations conference on disarmament in Geneva, is coming here shortly. We shall specifically discuss with him Soviet ideas about implementing a verifiable ban.

Mr. Dalyell: When Mr. Shevardnadze comes to this country, will the Minister arrange for Foreign Office officials, at senior level, to meet Mr. Julian Perry Robinson and his colleagues at Sussex university who are making a special study of these affairs?

Mr. Renton: I listened with interest to the hon. Gentleman's request. As Sussex university is on the edge of my constituency, I may have an opportunity to hear Mr. Perry Robinson's views. The hon. Gentleman should take

comfort from what I have said. The visit of Ambassador Issraelyan, the chief Soviet representative at Geneva, will give us an opportunity to consider in great detail the degree to which we can move towards a verifiable regime on the key issue of challenge inspection.

Mr. Haynes: I wholeheartedly agree with the Minister about the banning of chemical weapons. When he gets into negotiations about chemical weapons in Geneva. will he first admit that we have chemical weapons within our shores, although that has been denied ever since I have been here?

Mr. Renton: I thank the hon. Gentleman for his early support, but I totally disagree with his latter statement. Britain gave up the production and stocking of chemical weapons in the late 1950s. There has been a complete ban on their production in the United States ever since the late 1960s, and it is only against that background that NATO has now agreed to new United States production of such weapons at the end of next year if there is not a total ban in force by them. That is the carrot for us all to move towards. We should get a total verifiable ban before the end of next year.

Mr. Churchill: Although I recognise that the Soviet Union alone has a large-scale and modern chemical weapon capability which has given NATO little choice but to establish a new force goal for the development of binary weapons by the United States, will my hon. Friend make it quite clear that we favour a dual-track approach and that we would infinitely prefer an all-out chemical weapons ban, with proper verification provisions, to going ahead. in the last resort, with the force goal?

Mr. Renton: Yes, Sir. I can give my hon. Friend that assurance. NATO has no wish for the renewed production of chemical weapons in the United States if the far better option of a verifiable global ban can be negotiated by that time.

Mr. George Robertson: Can the Minister confirm that it is not an agreement by NATO to the deployment of binary chemical weapons, but that NATO has only noted the force goal of the United States? It is important to get that precisely correct, as some NATO countries oppose the force goal. Is it not clear that the Soviet Union genuinely wants an agreement on chemical weapons, as was made clear, it is understood, in a reply from Mr. Gorbachev to the Prime Minister only last week? As it is now willing to consider on-site inspection of destruction of stocks and production facilities, surely Britain could use its forthcoming presidency of the Geneva talks on the subject to talk on behalf of the British people, and not on behalf of the American Administration, in seeking an agreement to ban these terrible and wholly unnecessary weapons.

Mr. Renton: The hon. Gentleman sees matters in a very topsy-turvy fashion. The United States has had a total ban on the production of these weapons for 17 years. It is against the background of a continuing Soviet stockpile of more than 300,000 tonnes of such weapons that NATO has agreed to the force goal of the United States. As for what the hon. Gentleman said about the Soviet attitude, in their recent offers the Soviets have agreed, for example, to examine some points of detail such as declaring chemical weapon production sites within 30 days and beginning dismantling within one year. We have no news at all from them on the key issue of challenge inspection.


That is the issue, among others, which we shall explore when Ambassador Issraelyan comes here shortly and, doubtless, when Foreign Minister Shevardnadze comes here later. That is the key issue to be resolved.

Mr. Viggers: Does my hon. Friend agree that our policy of deterrence and negotiation is far more likely to be successful than the pious and empty hopes of the so-called alliance commission, which announced today, in a press conference taking place now, that it hopes that chemical weapons will be the subject of reduction?

Mr. Skinner: Who said that, though?

Mr. Viggers: Not surprisingly, the press conference is taking place despite the ostentatious boycott of the leader of the Social Democratic party.

Mr. Renton: Yes, Sir. It is absolutely clear that the dual track position of NATO — [HON. MEMBERS: "Of the alliance."] — over intermediate nuclear weapons was effective in bringing the Soviets back to the negotiating table, leading to a possible ban, on a zero basis, on intermediate nuclear weapons. These days it is hard to understand where the other alliance stands on any defence issues, but out position is quite plain. We, and all other Western countries, will fight for a verifiable global ban on chemical weapons.

Sri Lanka

Mr. Wareing: asked the Secretary of State for Foreign and Commonwealth Affairs when he last met the High Commissioner of Sri Lanka; and what subjects he discussed with him.

Mr. Eggar: My right hon. and learned Friend the Foreign Secretary has met the Sri Lankan high commissioner on a number of occasions, most recently on 18 March when the high commissioner called on him, accompanied by the Sri Lankan Minister of Foreign Affairs, the hon. Mr. Hameed.

Mr. Wareing: Does the Minister agree that it is a matter for great sorrow that that Commonwealth country should be ravaged by communal violence? If support is not given to Mr. Rajiv Gandhi's peace initiative, there is a great danger that both communities will be dominated by their own extremists. As the communities in Ceylon inherited that division from the days of British imperialism, could not the British Government play a role in spearheading a Commonwealth initiative to back Rajiv Gandhi in order to bring together those two communities?

Mr. Eggar: I thank the hon. Gentleman for the way in which he analysed the situation in the first part of his question. We deplore the continuing violence in Sri Lanka. We acknowledge Mr Gandhi's valuable and positive role in encouraging direct talks between the Sri Lankan Government and Tamil representatives. We shall support any efforts that are aimed at furthering the peace process. However, we believe that India has a crucial role in this whole area. We would be prepared to do whatever we can to support that role.

Mr. Sims: Is my hon. Friend aware that many hon. Members are friends of Sri Lanka and its people and would like to convey to them our distress at the continuing violence and, in particular, our sympathy over the outrage that has been reported today? May I warmly endorse the

views expressed by the hon. Member for Liverpool, West Derby (Mr. Wareing), and point out that the Indian Government have sought to effect a reconciliation for 12 months, without any success? Both communities hold the United Kingdom in high regard. Is not the time ripe for the British Government to take a positive initiative in effecting a reconciliation?

Mr. Eggar: I thank my hon. Friend for his remarks, and I shall ensure that his, and those of the hon. Member for Liverpool, West Derby (Mr. Wareing), are drawn to the attention of the Sri Lankan high commissioner. We continue to believe that we should assist the Indian Government in any way felt appropriate and should keep in close touch with the Sri Lankan Government.

Mr. Corbyn: Does the Minister accept that the origin of many of Sri Lanka's problems lies in the continual exclusion of the Tamil people from Government and other constitutional processes? Does he further accept that his concern to achieve peace in Sri Lanka would be far more credible if the British Government stopped supplying the Sri Lankan Government with arms, which have been used to kill Tamil people, and withdrew any training facilities offered to the Sri Lankan armed forces in this country? That would be one way of showing that he was determined to achieve peace in that country instead of escalating the communal violence.

Mr. Eggar: May I first say how pleased I am to see the hon. Gentleman participating in the democratic process rather than demonstrating on the streets—

Hon. Members: Withdraw.

Mr. Speaker: Order. Every hon. Member must take responsibility for what he says.

Hon. Members: Withdraw.

Mr. Eggar: I have no intention of withdrawing. I do not see that I have anything to withdraw. I welcomed the hon. Gentleman back to the House.
The hon. Gentleman put a peculiarly one-sided analysis of the problem in Sri Lanka in distinct contradiction to the view of the hon. Member for Liverpool, West Derby. I stress that no serving British military personnel are engaged in training in Sri Lanka.

South Africa

Mr. Tom Cox: asked the Secretary of State for Foreign and Commonwealth Affairs if he will make it his policy, as President of the European Economic Community Council, to initiate a review of relations between member states and South Africa; and if he will make a statement.

Sir Geoffrey Howe: The Foreign Ministers of the 12 regularly discuss the situation in South Africa at their meetings. The next such meeting will take place on 16 June. Foreign Ministers of the 12 will continue to meet to review policy during the British Presidency.

Mr. Cox: Is the Foreign Secretary aware that he, as the President of the EEC Council, will have enormous influence on the attitude of the other 11 members? As the situation worsens week by week in South Africa, and in view of the comments on the attitude of South Africa by the Eminent Persons Group, what else has to happen in that country before the Government start to give decisive


leadership against the actions and attitudes of the South African Government? Are we for ever to be making excuses? Are we for ever to be dragging our feet? When will we give some leadership?

Sir Geoffrey Howe: The Government have condemned the apartheid system without reservation and have made it plain that it ought to go and go as quickly as possible. It is to that end that we have supported the work of the Commonwealth Eminent Persons Group, whose report is now in our hands and will be considered. When the EC Foreign Ministers met the front-line states in February this year they made it clear that that group's report deserves consideration by them as well.

Mr. Adley: As my right hon. and learned Friend's presidency will, as he has just said, coincide with the publication of the Eminent Persons Group's report, will he give himself the priority of doing his best to align the policies of the EEC, the Commonwealth and Her Majesty's Government.

Sir Geoffrey Howe: As my hon. Friend will have noticed, the positions adopted by the Community at Luxembourg last September, and subsequently by the Commonwealth in the following month, were closely in line with each other.

Mr. Healey: Now that the Commonwealth Eminent Persons Group has reported that no progress is likely to be made towards a peaceful settlement in South Africa unless the external powers impose new sanctions on the Botha regime, will the Foreign Secretary persuade the Prime Minister to abandon her pig-headed opposition to sanctions, which has identified Britain as the only protector of apartheid in the outside world, has split the European Community and now threatens to break up the Commonwealth?

Sir Geoffrey Howe: The right hon. Gentleman's comment is characteristically inaccurate. The European Community's position has been the common position since September last year. The Commonwealth's position has been the common position since last October. It is important that full and careful consideration should now be given to the report of the Commonwealth Eminent Persons Group. We all share the common aim of bringing about an early end to apartheid in South Africa and, if possible, of achieving that without violence through a process of dialogue.

Mr. Dalyell: On a point of order, Mr. Speaker. In a week when the luck of the ballot gave Ministers an opportunity to answer questions legitimately put by a Select Committee of the House —the Select Committee on Foreign Affairs—is it tactful for the Under-Secretary of State for Foreign and Commonwealth Affairs, the hon. Member for Enfield, North (Mr. Eggar), to lecture my hon. Friend the Member for Islington, North (Mr. Corbyn) on the democratic process?

Mr. Speaker: Order. I have already made a comment about that. It is not a matter for me.

Later—

Mr. Corbyn: Further to that point of order, Mr. Speaker. Is it in order for a Minister, when answering a question in the House, to suggest that Members of Parliament who take part in demonstrations outside the House on matters about which they feel strongly are acting in an undemocratic manner? Is it not the case that democracy means that people have a right to speak freely in the House and also a right to speak freely and to demonstrate outside the House on matters about which they feel strongly?

Mr. Speaker: I am not responsible for what the hon. Member for Islington, North (Mr. Corbyn), does outside the House. It is perfectly in order for him to demonstrate if that is what he wishes to do. Every hon. Member takes responsibility for what he says in the House.

Mr. Marlow: Further to that point of order, Mr. Speaker.

Mr. Speaker: Will it help?

Mr. Marlow: Could you confirm to the hon. Gentleman in case he is in any doubt, that although any hon. Member is entitled to demonstrate and speak freely, he is not entitled to break the law?

Mr. Speaker: Order. That goes for all our citizens.

Mr. Bowen Wells: On a point of order, Mr. Speaker. Will you confirm that Question Time had been completed by the time you permitted a point of order to be raised by the hon. Member for Linlithgow (Mr. Dalyell)?

Mr. Speaker: Today Question Time ran slightly over to

Mr. Wareing: Further to that point of order, Mr. Speaker. Is it in order for the hon. Member for Northampton, North (Mr. Marlow) to imply that by taking part in demonstrations my hon. Friend the Member for Islington, North (Mr. Corbyn) has been involved in illegal activities? I understand—

Mr. Speaker: Order. I have already dealt with that matter.

Mr. Corbyn: rose—

Mr. Speaker: Further interventions do not help. I have given the hon. Gentleman my protection. What else does he want?

Mr. Corbyn: I am deeply grateful for your protection of democratic rights inside and outside the House, Mr. Speaker. I am sure you would also like it to be placed correctly on the record—because the hon. Member for Northampton, North (Mr. Marlow) obviously reads the headlines, not the stories—that I have not been charged with any offence arising from any actions that took place outside the Old Bailey on Monday morning.

Mr. Speaker: Order. Let us get on with something that is my responsibility.

Mr. Frank Cousins

Mr. Tony Benn: I hope that it will be in order, Mr. Speaker, briefly to place on record the sense of sadness that many hon. Members will feel at the death this morning near Chesterfield of a former Member of Parliament and Minister, the Right Hon. Frank Cousins, who was a distinguished member of the trade union movement and a warm and kindly man whose loss will he sadly regretted by those who knew him and worked with him.

Hon. Members: Hear, hear.

Crossbows (Restrictions)

3.36

Mr. Don Dixon: I beg to move,
That leave be given to bring in a Bill to restrict the sale of crossbows and make their sale to minors a punishable offence.
I appreciate that this issue has been raised many times by hon. Members on both sides of the House. Indeed, I pay tribute to the hon. Member for Plymouth, Drake (Miss Fookes), who has been foremost in the fight to have something done about these weapons.
The matter was drawn vividly to my attention last August when a constituent, Mr. Richard Docherty, brought to my office in Jarrow a crossbow which had been bought in a hobby shop in South Shields by his 15-year-old brother, Adrian. On seeing it, Mr. Docherty immediately took the weapon from his brother and tried it out in the garden. From 15 yards the steel arrow penetrated a piece of wood to the depth of 1 in, which is easily enough to kill a person at that range.
The weapon was manufactured by Barnett International of Wolverhampton, and it claimed on the package to be the most powerful crossbow manufactured in the world. This lethal weapon — I cannot describe it otherwise—had been sold in a hobby shop to a 15-yearold boy.
On 5 September 1985 I wrote to the Home Secretary, drawing his attention to this alarming and dangerous position which, in my opinion, could lead to fatal accidents, and urging him to take immediate action. On 30 September I received a reply from the Minister of State, who pointed out that the Prevention of Crime Act 1955 makes it an offence to possess any offensive weapon, including a bow or crossbow, without lawful authority or reasonable excuse. He went on to say:
Our view, which is shared by the Association of Chief Police Officers, is that bows and arrows do not present the same danger to the public as firearms, and that given the extensive restrictions that already are in use, we would not be justified in imposing on the police the substantial extra work load of further controls such as a licensing system would entail.
However, at the end of the letter the Minister said:
This is an important matter which we shall keep under review, in consultation with the Association of Chief Police Officers.
An article appeared in the Sunday Sun which is a newspaper covering the northern region, spearheading a campaign to have something done about the sale and use of crossbows. It was a constructive article written by the news editor Alistair Baker. The so-called independent review funded by Barnett International, the main manufacturer of crossbows, says:
Calls for crossbow legislation have been made at frequent intervals. Many originate with newspapers and are based on highly emotional and often irrational statements which have little or no basis in fact. Others originate from Members of Parliament.
That is an insult to every hon. Member who has had representations from constituents.
Since the article in the Sunday Sun appeared I have had letters from many parts of the country citing incidents that have occurred. One of the letters said:
Two policemen were attacked as they were getting out of the patrol car at Bracknell police station in Berks. One of the two bolts they dodged was fired with such force that it penetrated the station's concrete wall.
Another incident reported to me by letter was described as follows:


A bolt was fired at an airliner. A Dan Air plane with 44 passengers was about 100 ft off the ground. The bolt penetrated a wing and ripped part of the fuselage.
Those are some of the incidents that have been reported to me and no doubt other hon. Members have received similar reports from their constituents.
On 20 February during Question Time I asked the Home Secretary about these dangerous weapons. He said:
We are considering the matter carefully and urgently to see whether anything sensible can be done."—[Official Report, 20 February 1986; Vol. 92, c. 467.]
Early-day motion 638, tabled in March by the hon. Member for Drake drew the attention of the House to these dangerous weapons, and was signed by right hon. and hon. Members in all parts of the House.
I consulted my right hon. Friend the Member for Manchester, Gorton (Mr. Kaufman), our home affairs spokesman, and gave him copies of my correspondence and copies of the minutes of the Northumbria police authority which had debated this problem after hearing about the incidents in our area. My right hon. Friend wrote to the Home Secretary and in the reply that he received on 16 April the Home Secretary said:
Particular concern has been expressed recently about the mis-use of crossbows, and I accept that we should look at it again to see if anything further can sensibly be done to try and prevent these weapons falling into the wrong hands.
On 15 April the RSPCA wrote to the Home Office giving all the information it had on crossbow injuries to animals. It said that during the last five years over 100 cases of injuries and deaths were reported to animals and birds and that the numbers were increasing. On 6 May The Mirror had a full page article headed, "Menace of Weekend Rambos." In one part of the article the author talked about "death by mail order". The article said:
Already crossbows are taking a terrible toll. They can kill a man at 100 yards and are being used by thugs to inflict shocking injury and death on people, domestic animals and wildlife. Police admit that under the present law they are powerless to curb private combat training and the spread of legally-held weapons.
I stress the phrase, "legally held weapons."
I am sure that other hon. Members have also had letters about the terrible incidents that are happening week after week. If something is not done quickly there will be not just one but many deaths. My Bill asks the Government to do something urgently. First, it asks that the use of crossbows should be licensed under the Use of Firearms Act 1968. Secondly, it would amend section 11(1) (b) of the Wildlife and Countryside Act 1981, to make it an offence to kill any animal with a crossbow and not just wild animals and birds. Thirdly, it would prohibit all mail order sales. Fourthly, it would prohibit sales to all but those over 17.
Something must be done immediately, because if the situation is allowed to go unchecked there will be serious consequences. I hope that the House will accept the Bill and give it a Second Reading.

Question put and agreed to.

Bill ordered to be brought in by Mr. Don Dixon, Mr. Frank Haynes, Miss Janet Fookes, Mr. Lawrence Cunliffe, Mr. Ron Davies, Mr. Ray Powell, Mr. Mark Fisher, Mr. Tony Banks, Dr. David Clark, Mr. Gregor MacKenzie, Mr. Robin Corbett and Mr. Mark Hughes.

CROSSBOWS (RESTRICTIONS) BILL

Mr. Don Dixon accordingly presented a Bill to restrict and control the sale of crossbows and make their sale to minors a punishable offence: And the same was read the First time; and ordered to be read a Second time upon 4 July and to be printed. [Bill 176].

Mr. Jeremy Corbyn: On a point of order, Mr. Speaker. Is it in order for the manufacturers of offensive weapons to send misleading information to hon. Members the day before my hon. Friend the Member for Jarrow (Mr. Dixon) introduced his ten-minute Bill? They sought to influence the debate without giving hon. Members a chance to check the information in a report sponsored by the manufacturers.

Mr. Speaker: I am not responsible for any representations that may be made from outside this place to hon. Members.

Social Security

The Minister for Social Security (Mr. Tony Newton): I beg to move,
That the draft Social Security Benefits Up-rating Order 1986, which was laid before this House on 8th May, be approved.
I understand that it will be for the convenience of the House if we take with this order the four following motions and the prayer in the name of the Leader of the Opposition.

Hon. Members: "Aye."

Mr. Speaker: As that is the wish of the House, we shall be debating as well the following motions:
That the draft Supplementary Benefit Uprating Regulations 1986, which was laid before this House on 5th June, be approved.
That the draft Family Income Supplements (Computation) Regulations 1986, which was laid before this House on 8th May, be approved.
That the draft Child Benefit (Up-rating) Regulations 1986, which was laid before this House on 8th May, be approved.
That the draft Pensioners' Lump Sum Payments Order 1986, which was laid before this House on 8th May, be approved.
That an humble Address be presented to Her Majesty, praying that the Housing Benefits Amendment (No. 2) Regulations 1986 (S.I., 1986, No. 852), dated 14th May 1986, a copy of which was laid before this House on 16th May, be annulled.

Mr. Newton: These instruments, together with the regulations against which the prayer is made, put into effect the proposed uprating of social security benefits that was announced by my right hon. Friend the Secretary of State in the House on 24 February. They also provide for the payment of a £10 Christmas bonus and make a minor technical change to housing benefits that will ease the burden of administration on local authorities without affecting claimants. The social security benefits uprating order is accompanied by a report from the Government Actuary on the effects of our proposal on the national insurance fund. In accordance with his statutory requirements, my right hon. Friend the Secretary of State has also made a statement explaining the reasons behind the proposed uprating of mobility allowance.
I shall remind the House briefly of some of the main features of the proposed upratings, which are set out in full detail in the schedule published at the same time as my right hon. Friend's statement on 24 February. Most benefits, including retirement pension, widows' benefit and unemployment benefit, are going up by 1·1 per cent., which accurately represents the increase in prices between May 1985 and January 1986, which was the relevant period for this uprating. This means, for example, that a married couple's retirement pension goes up from £61·30 to £61·95, and that for a single person from £38·30 to £38·70 a week. The long-term rate of supplementary benefit and the housing benefit needs allowance will go up by the same cash amount as the relevant contributary benefit. Child benefit will go up by 1·4 per cent. from £7 to £7·10 a week, and mobility allowance will be increased in line with the retail price index to £21·65 a week. I make it clear that the increase in mobility allowance has come at a time when the cost of transport, which is one of the elements that needs to be taken into account, fell in the relevant period for the uprating.
As the House knows, one important feature of the uprating is that it covers a period of only eight months instead of the normal period of a year. This arises from our intention, which has been almost universally welcomed, to change the annual social security uprating cycle from November each yeat to April each year, so that the benefit year is brought into line with the tax and national insurance year and with the time at which local authority rent and rate alterations normally occur. When it is completed, this change will avoid a great deal of unnecessary confusion and difficulty to all concerned, not least, as many hon. Members will know from their postbags and advice bureaux, among pensioners who have suddenly found their tax codes adjusted in the middle of the tax year following the pension increase.
In this transitional year, that problem will be avoided by the provision that my right hon. Friend the Chancellor of the Exchequer has included in the Finance Bill, which means that the pension increase that the uprating order will bring about in July will not be subject to tax in the present tax year of 1986–87. Therefore, the pattern is this. Last November there was a normal annual uprating based on the measured increase in prices from May 1984 to May 1985. This July there will be a further uprating after only eight months, based on the rise in prices in the eight months from May 1985 to January 1986. In April 1987 there will be another uprating, again after only eight months, based on the increase in prices in the eight months from January 1986 to September 1986. Thereafter, there will be annual upratings in April each year. At every stage, pensioners are being compensated for the actual increase in prices that has taken place using the latest actual figures available when the uprating announcement has to be made in order to implement it on time.
It follows from what I have said that the 1.1 per cent. figure on which the present uprating is based, being related to price increases over eight months rather than 12, cannot be compared with annual rates of inflation, as some have sought to do. But as well as the shorter period involved, this figure undoubtedly reflects an achievement that of itself is of great importance to pensioners and other social security beneficaries — the Government's success in cutting back the rate of inflation.
If the hon. Member for Oldham. West (Mr. Meacher) is expecting me to apologise for this uprating, he has another think coming. Nothing in decades has done as much harm to pensioners as the inflationary surge created by the Labour policies of the 1970s. Nothing has been more important to the financial welfare of retired people than what the present Government have done to bring inflation to its lowest level for nearly 20 years, and nothing is more important to their long-term well-being than that this achievement of steadier prices should be maintained.
In a world of uncertainty I am willing to make two clear predictions. One is that if the hon. Member for Oldham, West were let loose to spend as he promises, we should have the inflation back. The other is that. when he comes to speak, we shall hear nothing whatever of the context in which these uprating orders should properly be placed.
Let me sum up this part of my speech by making six sinple points. First, pension and other increases come four months earlier than usual with this uprating. Secondly, when taken together with the increase last November, they mean that the pension for a married couple will be increased by £4·65 a week in less than a year. Thirdly, there will be another increase only months later, thus bringing


three increases in a period that would normally have seen only two. Fourthly, those increases come with greater price stability than we have seen for decades. Fifthly, they help to give us a more sensible framework for further increases in the future. Sixthly, they are fully in line with our firm and continuing commitment to maintain the pension's value.
With the forthcoming increase in July, the value of the pension will have increased by some 98·5 per cent. since the last uprating before the present Government came into office, and over the same period the rise in prices is expected to have been something around 92 per cent. There has therefore been a real increase in pensioners' purchasing power. In a period when the number of pensioners has itself risen by 850,000—from just over 8·5 million to just under 9·5 million—that is no mean achievement. On the contrary, it is one in which the Government can and do take pride.

Mr. Tony Marlow: It might be helpful to reinforce the point that my hon. Friend made about inflation, given that the Labour Opposition seem to be bent on policies that will increase inflation yet again with devastating effects on elderly people. Do not a large number of elderly people save for their old age and retirement, and with the sort of policies that the Opposition have pursued in the past, and will wish to pursue in the future, we shall again have very heavy rates of inflation which will mean that year after year swathes of hard-earned savings will be taken from these people by such an uncaring Government?

Mr. Newton: My hon. Friend has emphasised the point in words more eloquent than I can command, and I can only agree with everything that he said.

Mr. Frank Field: I do not want to tackle the Minister on changing the date of the general uprating and the effect that that must have if a series of upratings quickly follow each other. Clearly, the size of the increase will be much smaller than if it were to be done on an annual basis, and I believe that the Government have difficulty in convincing people that they are being generous and fair.
I expect that the Minister has seen the Child Poverty Action Group brief. The CPAG does not dispute the calculation for the eight-month period. However, it says that, given the dramatic fall in inflation during the period in which the calculations were made, a married pensioner couple on supplementary benefit will lose about £8·80 over the whole year — almost as much as the Christmas bonus. Do the Government intend to make that up by doubling the Christmas bonus this year?

Mr. Newton: I shall make two points, one rather aggressive and one more in tune with the way in which the hon. Member for Birkenhead (Mr. Field) put his argument. First, under the last Labour Government, pensioners twice lost their Christmas bonus, while this Government have written the Christmas bonus firmly into the law. Secondly, no doubt to my disadvantage, I have not so far been vouchsafed the brief and I am hesitant to be drawn into comment without seeing the basis on which the figures are calculated. As things turned out, because of the falling inflation rate the 7 per cent. increase in pensions last November was larger than the increase in

inflation which proved to have taken place by November. The increase was related to the increase in prices over the year until May.
One can play games with statistics, but I am glad that the hon. Member for Birkenhead has acknowledged that the pension upratings have at every stage been firmly and fairly based on the measured increase in prices over a historic period at the latest date available to carry the upratings through.

Mr. Field: When the Minister is blessed with a copy of this brief, will he open conversations with outside parties as well as hon. Members on whether the Government have acted totally fairly in changing the dates for the upratings?

Mr. Newton: I shall of course undertake to look at the CPAG brief and to consider any points that arise from it. I shall now give way to the hon. Member from the housing benefit world.

Mr. Nick Raynsford: I want to ask a question relating to the Minister's earlier remarks about the increase in the value of pensions in this Government's lifetime. What would be the pension value now if the increase in the pension had been related, as it was under the previous Labour Government, to the increase in earnings or inflation, whichever was the greater? By how much are pensioners now worse off because of that unlinking?

Mr. Newton: If I were to be drawn in that way I should want to give the figures for the increase in the national insurance contributions which would have to take place, the numbers of additional people who would be made unemployed as a result and the increase in inflation, which would create hardship for pensioners by a different route.

Dr. Norman A. Godman: On the so-called well-being of pensioners, is the Minister satisfied with the way in which applications for exceptionally severe weather payments were made in Scotland and elsewhere?

Mr. Newton: The Department did all that it could to make clear the system for exceptionally severe weather payments and to process applications as efficiently as possible. There are a series of anxieties about the working of that regulation and the Government are reviewing the operation of the scheme to see what changes, if any, are required.

Dr. Godman: The Minister allowed my hon. Friend the Member for Birkenhead (Mr. Field) to put a supplementary question, and I should like to do the same. A goodly number of pensioners have already approached me about the circumstances surrounding the regulation for next winter. What is the probability of a change in the working of the regulation to deal with the very severe weather that we shall experience in Scotland next winter?

Mr. Newton: The hon. Gentleman's confidence in his weather forecasting is greater than mine and of forecasters generally. I hope that we shall not have a third successive winter like the last two. Whether or not we have a severe winter, we have made it clear that we are looking again at the regulation in the light of the two winters' experience, which was not entirely satisfactory. I cannot make a definite commitment about the outcome of our investigations, but I am aware of the anxieties which the hon. Gentleman has properly expressed on behalf of his constituents. I do not dismiss those anxieties.

Several Hon. Members: rose—

Mr. Newton: This is a relatively short debate. Although, with my customary good nature, I am giving way to all and sundry, there must come a point at which I allow the hon. Member for Oldham, West to have his say—unpalatable though that will be to me.

Mr. Frank Field: When visiting our constituents, many of us have noticed that, because of the poor weather, they are still using their heating. Is it not during the summer months that many pensioners and families hope to make savings on their fuel bills towards their winter fuel bills? To what extent will the Government take that into account both when making changes in the weekly additions for heating and in their flexibility on severe weather payments?

Mr. Newton: If the hon. Gentleman is inviting me to go down a path whereby exceptionally severe weather payments are paid regularly throughout the year, I am sure that he will understand my hesitation in commenting too far. However, I note his point.

Several Hon. Members: rose—

Mr. Newton: I think that perhaps one of my hon. Friends deserves an opportunity to intervene. I hope that he will ask a more helpful question.

Mr. Tony Favell: Indeed, I have a helpful question. Is not the greatest help that we can give to old age pensioners for their fuel bills to hold down inflation and fuel bills—and, indeed, even reduce them—not only during hard weather in Scotland but throughout the year?

Mr. Newton: I very much agree with my hon. Friend. Indeed, during recent weeks it has been striking that there has been held out the possibility of lower fuel hills. I invite Opposition Members to cast back their minds to the last time that that happened.
I wish to make one general and one specific point before I sit down. The general point is that we have not, on this occasion, followed the practice of using different formulae for uprating the different main elements of the benefits system. In particular, the uprating of supplementary benefits has been kept in line with the cash increases in the relevant contributory benefits so as to minimise the problem of people being floated on and off supplementary benefit by tiny variations of a few pence between the supplementary benefit scale rates and the rates of other benefits received by supplementary beneficiaries.
I do not put that before the House in anything other than a spirit of pure pragmatism. We thought that with three upratings in 16 months it was sensible neither for claimants nor for the administration of the system to shuffle people on and off supplementary benefit on each occasion. For similar pragmatic reasons, the regulations do not provide for general changes in the additional amounts paid with supplementary benefits, but only for increases in the adult and children scale rates, the various personal expenses rates and the limited number of additional requirements, but including — this is very important—the higher rate of heating addition that goes to the very elderly, the severely disabled and those with homes that are especially difficult to heat. That heating addition is increased from £5·45 a week to £5·55 a week.
We have adopted a similar approach — this will interest the hon. Member for Fulham (Mr. Raynsford) —to housing benefit needs allowances, partly to avoid

changes in other benefits triggering changes in housing benefit and partly because this year the timing of the uprating period meant that it was not possible to apply straightforwardly the normal housing benefit uprating formula, which is of such arcane complexity that I suspect that only the hon. Member for Fulham, to whom I pay full credit, is fully conversant with its ins and outs. However, I do not want that to be seen as an encouragement to him to deploy his expertise at length this afternoon—

The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Major): Hear, hear.

Mr. Newton: It is obvious that my hon. Friend's enthusiasm for that prospect is even less than mine.
The arrangements set out in these uprating regulations represent what we believe to be a practical compromise that will cause the minimum of administrative problems for local authorities and beneficiaries alike.
My more specific point, which again is connected with housing benefit, relates to the Housing Benefits Amendment (No. 2) Regulations 1986, which contain some provisions apart from those that simply uprate the housing benefit needs allowances. Those other provisions relate to benefit periods—the period of time for which a housing benefit award is allowed to run before it has to be reviewed by the local authority.
The maximum benefit period for a pensioner is usually 12 months and for a non-pensioner seven months. The existing regulations embodying those benefit periods were drafted with annual upratings in mind and local authorities have always planned their review of cases accordingly.
The pattern of upratings during this period of faster and more frequent than usual upratings would cause many local authorities considerable operational difficulties by requiring them to review the circumstances of claimants twice within a relatively short period and at considerable administrative cost. At the request of local authorities, therefore, we have agreed to ease the benefit period regulations to avoid that. The regulations in question include that beneficial change.
I remind the House that even this uprating, after a period of only eight months, will cost some £420 million in a full year, in addition to the £2,000 million cost of last November's uprating. Total spending on social security will thus stand at almost £43 billion in 1986–87, which is more than 30 per cent. of all public expenditure. That is a massive sum in anyone's book, and a clear demonstration of the Government's commitment to fulfil our obligation to pensioners and others depedent on social security benefits.
In view of what the hon. Member for Oldham, West may want to say in a few moments—I guess that it will include fairly repeated use of the word "cuts"— I must say that the broader context in which this occurs, as is shown in the recent public expenditure White Paper, is that between 1980–81 and 1985–86. far from falling in real terms, social security expenditure rose by £9,500 million in real terms — a real increase of more than 30 per cent. That includes — with many other factors, as I acknowledge — an improvement in support for low-income families in work, a number of important improvements for disabled people — including a real increase in the mobility allowance, the introduction of the severe disablement allowance and the abolition of the


invalidity trap—significantly increased help with heating costs for the less well-off, abolition of the married women's half test, which did so much injustice to a number of women, and, not least, that real increase in pensions—and for almost a million more pensioners.
It is not a record for which I will apologise to the House; it is a record that I put before the House with pride. I invite my hon. Friends to endorse the motion and to reject the Opposition prayer.

Mr. Michael Meacher: A few weeks ago the Top Salaries Review Body report was published. The batch of social security orders that we are debating might well be described as the bottom salaries review body report. It certainly highlights the huge contrast in treatment meted out to pensioners, to mothers on child benefit and to unemployed families on supplementary benefit when compared with the plush and velvet glove handling of top civil servants, top judges and top military officers.
For the latter in the elite ranks of society the increase this year is £46 a week. For the average-paid worker, earnings this year will rise by £14·50 a week. For low-paid workers, such as those in the ancillary grades in the National Health Service, the increase currently on offer is about £3·25 a week. For a pensioner in retirement, the increase proposed is just 40p a week. For mothers on child benefit, it is precisely 10p a week — an amount so piffling that I suspect most people would scarcely bother to stoop down in the street to pick it up.
I think that the message is not lost on Ministers. I have not before heard the Minister in quite such a defensive mood as he was today. Perhaps he protests too much. I listened to all his caveats, and there could scarcely be a more eloquent testimony of this Government's obsession with one law for the rich and another for the poor.
The Government argue that they have increased pensions and benefits — the Minister, predictably, brought forward the argument today — strictly in line with the retail price index over the relevant period. So they have. That is the reason for the minuscule increases. The Government's argument is wholly fallacious. There is no statutory requirement that benefit increases should be limited to the RPI over the review period. All there is is a floor, a statutory minimum, for increases in benefit. The Government have said from time to time that they would like to improve the basic pension in real terms. In 1980, the Secretary of State for Social Services stated explicitly that it was the Government's intention to allot pensioners a share in rising national prosperity. This year, when the retail price index increase is so minute, the Government were offered a perfect opportunity to achieve that alleged intention. They have ostentatiously turned it down.
This year's increase is the most insulting one for decades. It is worse than that. The Government, by changing the operating periods this year, have cheated pensioners out of a bigger increase that they would have received if the uprating periods had remained unchanged. I shall explore that point which was made earlier. If the uprating had taken place at the normal time in November 1986, single pensioners would have received double the extra cash from a 4 per cent. increase paid for only four months thereafter up to the April 1987 changeover than they will receive under today's uprating from a 1 per cent. increase paid for eight months until April 1987.
The Secretary of State, when he introduced the changes in the uprating periods, chose to present them in terms of simplification, as he so often does. Pensioners have learned from bitter experience that whenever the Government speak of simplification they generally mean a cut. I will not apologise for the use of that word because that is exactly what people's experience is. The present position is no exception. As I said at the time of the announcement of the uprating arrangements on 24 February, the Government's sleight of hand with the arrangements will mean a loss to pensioners of around £120 million, which they will not recover.
The new arrangements matter in view of other aspects of Government policy on pensioners. The critical point in the debate is that, every year, the break in the upratings link with earnings which the Tory Government carried through in 1980 bites ever deeper. The loss grows much more in years in which earnings significantly outstrip prices. This year is a prime example. Earnings are rising at about 7·5 per cent. compared with prices which are rising at about 3 per cent. In other words, if the Government had not broken the link with earnings, and if they had not fiddled the uprating period, the pension increase this year would have been more than double, as it would under Labour's formula, even for the full year. That is a significant difference.

Mr. Martin M. Brandon-Bravo: I do not think that the House disputes what Labour party policy was eight years ago. Can the hon. Gentleman guarantee that that policy would not have changed had the Labour party been in office for the past seven years? His party's track record on pensions, the Christmas bonus and the real cuts in the National Health Service might lead people to believe that the Labour party ditched that policy long ago.

Mr. Meacher: It is a bit rich for the hon. Gentleman to challenge us on our record on the National Health Service. If he had considered the views of the electorate on cuts in the National Health Service, he would not have taken that as an analogy. I invite him to listen to the end of my speech when I shall make absolutely clear the full assurance that he seeks, perhaps contrary to what he expects.
The exact figures regarding the earnings link have been provided by the Library. Since the Minister was so coy about the figures, I shall cite them. The statistical section of the Library calculates that if the link had not been broken by the Government in 1980, the single pension, which is £38·30 a week, would have been £42·30 —exactly £4 a week more. The married pension, which is £61·30 a week, would have been £67·60 a week—£6·30 a week more. For millions of pensioners who are forced to eke out their lives never far from want or financial hardship, those are substantial and serious losses.
The size of the loss to pensioners can be seen from the fact that it represents savings to the Government this year at the expense of pensioners of no less than £1·8 billion. That is the total value of the cut in pensions this year as a result of the break with the earnings link.

Mr. Newton: As the hon. Gentleman has accused me of being coy, can he tell me whether the Library has also calculated what increase there would have been in national insurance contributions, how many more people would


have been placed out of work as a result, and how much higher the rate of inflation would have been if we had gone down that track?

Mr. Meacher: Coming from a Government which has tripled the rate of unemployment, that is another pretty rich question. As the Minister knows only too well, we are talking about transfer payments between the working population and those who are retired. I think that the Minister knows that we would have run a different kind of economic policy — not the kind of monetarist contractionary policy which has produced a level of manufacturing output that has still not reached its 1981 level. Out of that extra output, it would have been relatively easy to pay a significant increase in pensions.
The link with earnings was instituted by the Labour Government in 1975. That is the fundamental reason for the huge difference in the pensions record between the Labour Government and the Tory Administration. In six years of Labour Government, the pension increased by 20 per cent. in real terms. In seven years under the Tory Government the pension has increased by just 3 per cent. in real terms. I suggest that the difference between the parties in terms of priorities for the pensioner could scarcely be plainer than those figures show.

Mr. David Lightbown: Can the hon. Gentleman say what the rate of inflation increased by in the period that he is stressing pensions have increased?

Mr. Meacher: The hon. Gentleman has missed the point that what matter to pensioners is the overall increase in their income after taking account of inflation. I do not know whether he knows the meaning of the words "in real terms". "In real terms" means after taking account of inflation. The inflation rate, at 26 per cent. in Labour's worst year, was too high, as was 22 per cent. in the Tory Government's worst year. Taking account of both of those facts, pensions increased six or seven times more in real terms under Labour than they have, alas, under the present Government. That is the key point.

Mr. Michael Forsyth: Can the hon. Gentleman say what happened to the savings in money that pensioners had put aside in real terms?

Mr. Meacher: The same thing happened regarding the too-high rate of inflation in 1975 as happened regarding the too-high rate of inflation in 1981. Of course, inflation damages pensioner savings. We accept that there is a need to reduce the rate of inflation for that reason. Pensioners with significant amounts of savings are in the minority. The real point for the majority of pensioners is the real increase in pension over and above inflation. The record of the present Government is tenuous compared with the record of the Labour Government. In no other respect is the difference between the parties so stark.
It is proposed this year to pay the pensioners' Christmas bonus at a rate that has been unchanged for 14 years. If the £10 rate paid in 1972 had been uprated each year—no matter which party was in power—in line with prices, it would now be no less than £44. I submit that, apart from the huge shrinkage in value to pensioners because the bonus has been kept at the original £10 rate, there is another strong reason why the Government should

increase it this year. Each year until now, the annual pension increase has been paid in the month before Christmas. Pensioners therefore have some extra resources with which to meet Christmas costs and some protection against increasing winter fuel bills. This year, that extra pension increase, which is now being paid in July, will not be available as a new increase to pensioners. That is why the failure to increase the Christmas bonus this year—when it has already lost more than three quarters of its real value since 1972 and when this year's pension increase is merely a pathetic 1 per cent.—is so regrettable.
Therefore, our charge is that the Government are treating pensioners extremely shabbily. Of course the Government state that they cannot afford to do more. They always say that. But they can certainly find big money for other, favoured causes. There is a great deal of talk during the run-up to the general election about the Government cutting the basic rate of income tax from 29 per cent. to 25 per cent. That would cost nearly £5 billion. If such amounts can be found, why are pensioners fobbed off with this cheap and insulting option of a 40p pension increase?
Then there is the £3·64 billion—the Treasury's figure — by which taxes have been cut since 1979 for the richest 5 per cent. That is twice as much as would be needed to restore the earnings limit for pensioners. Why should directors on £30,000 or more a year get a huge cash bonanza while pensioners are left out in the cold, literally as well as metaphorically?
It is all a matter of priorities. Our priority, as we have demonstrated, is for the pensioner. The Government, as they demonstrate each year, are for the wealthy and the privileged. By contrast, we shall take back the £3·64 billion which has been handed out to the rich and distribute it instead to the beneficiaries — perhaps I should say victims — of these social security measures. We shall increase the single pension by £5 a week and the married pension by £8 a week.

Mr. James Couchman: When?

Mr. Meacher: It shall be done in the first Labour Budget. We shall increase child benefit by £3 a week. We shall extend the long-term rate of supplementary benefit to all of the long-term unemployed. All of those major improvements for people on some of the lowest incomes can be afforded without any increase in taxation for 95 per cent. of our people. That can be done simply by making the top 5 per cent. hand back what they should never have been given in the first place.

Mr. Frank Field: I am sure that people outside the House will he following this part of the debate more carefully than most of our debates. My hon. Friend has referred to the Labour commitment of a £3 a week increase in child benefit. Is the Labour Front Bench giving a clear commitment that that increase will be given in the first year of the next Parliament?

Mr. Meacher: Yes. They are all straightforward, redistributionable changes, which we intend to make in the first year in our first Budget.

Mr. Favell: My hon. Friend the Minister for Social Security said that the bill to the nation for the uprating will be £420 million. If the hon. Gentleman were standing at the Government Dispatch Box, what would his bill be?

Mr. Meacher: Clearly, the hon. Gentleman was not listening. My point was that we will take back the £3·5 billion, or slightly more, that has been handed out in tax cuts—income tax, capital transfer tax and capital gains tax, the abolition of the investment surcharge to the richest 5 per cent. of our society—and use that money to pay the pensioners, the mothers with young children and the long-term unemployed. We believe that those are the right priorities, and we shall soon take that message to the nation.
Our second major objection to these measures concerns the 10p increase in child benefit, which is derisory. We object to it for several reasons. First, it makes no effort to restore the 35p cut made last year—a cut to mothers of £175 million in real terms. Secondly, the Prime Minister again trumpeted recently her support for a family policy; yet this tiny increase of 10p shows that her actions belie her words. Thirdly. there is no commitment to index child benefit in line with prices, let alone earnings. The Government Whips organised a filibuster a few weeks ago to prevent the proposal of the hon. Member for Kensington (Sir B. Rhys Williams) from even being debated. That reveals the depth of the Government's opposition to any such notion. Fourthly, there is no assurance that the extra £64 million expenditure on child benefit—due to a reported underestimate of the number of children—will not lead to cuts in other benefits or child benefit, as the Government's record might lead one to suspect. I should be pleased to allow the Minister to intervene if he wishes to deny that.

Mr. Newton: It is simple. The £64 million to which the hon. Gentleman refers and which I think surfaced in a report in The Guardian is additional expenditure that was incurred in 1985–86. Obviously, there can be no question of compensating changes to offset expenditure that has already been met.

Mr. Meacher: I am glad to hear that. That will be a welcome announcement, given the suspicions that we hold for genuine reasons, that that type of overrun is always met by corresponding cuts.
Fifthly, over the past 25 years, the fiscal system has moved steadily against families with children. No attempt is being made this year, when there is such a small increase, to reverse that. That is a great pity. Sixthly, and most importantly, bearing in mind that child benefit is widely agreed by both sides of the House to be by far the most effective device to remedy family poverty, it is surely tragic that the Government apparently still intend to phase it down in favour of family credit. which is footling by comparison.
In case I am unfair about this—I should be glad to give way to the Minister again—I ask this one modest question: Will the Minister give an assurance that the real value of child benefit will be maintained at least until 1988? Would the Minister like to give an assurance on that point?

Mr. Newton: All I can do is give the hon. Gentleman the assurances that we have already given and have shown by uprating child benefit in the motions. We continue to attach great importance to child benefit as a universal benefit normally payable to mothers, but we shall continue to take decisions about child benefit in the context of policies as a whole, including the universally supported

desire to do more for low-paid families with children, whether in or out of work. That involves from time to time taking decisions about the balance.

Mr. Meacher: That is a carefully worded answer. The implications are clear—we can expect either a freezing or a small increase in child benefit, as there was last year. That is a very unwise decision.
I turn now to the general uprating implicit in these motions. I have already referred to the fact that the switch to a July uprating means a loss to claimants in general over the year. My hon. Friend the Member for Birkenhead (Mr. Field) made the same point. Although it may not be a large loss, the real point is that this year there should not be a loss at all because, at this point, the country can afford a more generous uprating.
With average earnings now rising at 7·5 per cent. a year, as I have said, fully six percentage points above the tax and prices index, it is only fair that the poor and the weak should obtain the same benefits as the rich and the strong. A benefit uprating in line with earnings rather than prices would have been a tangible expression of that sentiment and it would have been supported by the majority of the electorate. When asked whether priority should be given to a 1p cut in the basic rate of tax in the Budget or to increasing benefits for the poor, a recent poll I saw showed that 61 per cent. favoured an increase in benefits compared with 48 per cent. who favoured the tax cut.
I would like briefly to add two other points on housing benefit. This year—the Minister made brief reference to this—supplementary benefit and needs allowances have not been increased by the formulae the Government introduced in 1982. The supplementary benefit formula would have given an increase of 1·2 per cent. Instead, the pension uprating formula has been applied, which yields 1·1 per cent. The difference is, of course, marginal but I would say that it is all the more symbolic for that. If the difference between the two formulae is minute, why do the Government always unerringly choose the lower one rather that the higher one?
No new awards of the supplementary benefit non-householder rent addition will be paid to persons under 25 after July. I realise that that is an order that will come before the House later, so I am making no more than a reference to it. However, it is relevant when we discuss supplementary benefit. I believe that that is a retrograde step. It will further erode the independent status of young people and it is to be condemned as another example of the creeping implementation of the social security review before the Bill is even through Parliament and as another device to save money on transitional protection.
These are not dry or routine social security orders, as I think that the Minister tended to introduce them. We are debating the incomes and livelihood of millions of Britain's poorest families. We will certainly not vote against any improvements proposed in their standard of living, however meagre or limited we might believe them to be. However, I want to put firmly on the record that the incoming Labour Government, which we shall soon see, will take a radically different and more just view of the proper distribution of this nation's wealth between rich and poor. Indeed it is because all of those who are the subject of these orders today — the pensioners, the mothers, the unemployed and the low paid—have a vote that that Labour Government will not be long in coming.

Sir Brandon Rhys Williams: I have a feeling that a number of hon. Members were not certain what the nature of the debate would be when they came into the Chamber this afternoon, because it is extremely difficult to vote against a series of orders and regulations which have the effect of increasing the amount of benefit that will be available to millions of people. Therefore, if the House is to make constructive use of this short debate we should try to focus our minds on some of the longer-range issues behind the system, which has surfaced again this afternoon, where Ministers have to come to the House at stated intervals to recommend changes in the level of benefit that will be available to different classes of people through our various systems for the redistribution of income.
I think that it might be worth while for the House to consider the ways in which we redistribute income and whether these upratings, and the way in which we calculate the right amounts and the people who will be eligible for the benefits, are what we want, and whether this is a permanent system that will remain in place year in, year out. From the speech that we have just heard from the hon. Member for Oldham, West (Mr. Meacher), from the Opposition Front Bench, it seems that the Opposition are determined to make major changes. However, they have not escaped the criticism that major improvements in the system have to be paid for from somewhere.
My first point is that when we talk about the redistribution of income we have not only to consider who the money is going to and how much it is to be, but to decide where the money is coming from and who will make contributions to the system.
I think that it is worth considering the basis for the entire redistribution of income, because I want to do something that I have done many times before in the House, which is to emphasise that we must look at the income of the redistributive system as well as the outgoings. That leads me to the same conclusion as I have always been led to before, which is that progressively we must move towards integration of the income tax system, national insurance contributions, national insurance benefits, supplementary benefits and the rest. We must work towards the integration of the tax system and the benefit system so that both sides are seen to be fair and administratively comprehensible and simple.
I do not think that anyone on either side of the House would disagree that, for the majority of citizens, the present system is arbitrary, incomprehensible and a disincentive for the millions, divisive in a way that is socially extremely dangerous and on the verge of administrative collapse. The House cannot be satisfied simply to approve the uprating regulations and allow a situation to continue in which there is general agreement on the underlying state of affairs. I do not think that hon. Members would challenge me on those accusations.
It seems that we have never really clarified our thinking on the basis of entitlement to benefits. We are talking about millions of people who will receive benefit as a result of these measures, but we do not really know precisely why we are giving them the money. Is it because we are trying to provide them with a basic income guarantee that is sufficient to live on? If that is the case, in many aspects the amounts that we are paying will not be enough. Is it because there is an actuarial relationship with the

contributions that they have made during the course of their working lives which decrees that certain payments must be made?
That certainly is not so, not just because inflation is making all our figures turn to jelly, but because we have changed the basis of entitlement to claims for pensions, and so on, as the years have gone by, so that what people have paid into the system in the past and what they are paying now and what they are entitled to draw out of the national insurance system have no actuarial relationship whatsoever. Therefore, we are not relying on arithmetic.
I believe that the system can be divided into four. First, there are the universal benefits. Some of them began to be instituted in the 19th century. I am thinking particularly of public education. In the 20th century there have been great strides forward. The National Health Service is a universal benefit, broadly speaking, and of course there is child benefit, which is a universal benefit, which is paid in cash. I think that there is a considerable degree of public dissatisfaction about all the major universal benefits. I do not think that people are happy about the administration of the Health Service, they are not happy about the administration of public education and there is a considerable degree of opinion that child benefit is not at a sufficient level, considering the real cost of raising a child. There is plenty of room for debate on this subject, and the debates are going on.
Secondly, there are the contributory systems. As I have mentioned, the figures have turned to jelly and nobody has any idea of the relationship between obligation and entitlement in national insurance.
Thirdly, there are the means-tested benefits, not just supplementary benefit, but the housing allowances, which differ very much in different parts of the country. I was given an appalling figure in a parliamentary answer a few weeks ago. I asked how many people in this country were living in families which were dependent, in one way or another, on support obtained through proof of need. The answer was 14 million. As far as I am able to ascertain, that number is rising. There can hardly be a more desperately divisive state of affairs than having 14 million people who are dependent on proof of need to sustain their living standards.
The fourth welfare state that we operate—it is less obvious than the others, but none the less real—is the tax concession system, which produces differentiations of hundreds of pounds a year between people with identical incomes on account of their different commitments and marital circumstances.
I have had the feeling for a number of years that no serious thought has been given, either in the Treasury or the DHSS, to the way in which the redistribution of income is to be handled.
Where are we heading? It seems that there is a steadily rising number of people who are dependent on proof of need. I do not think that many Members realise that the figure has risen to 14 million. My interpretation of trends that can be observed is that that figure is likely to rise. In making an effort to provide a minimum income guarantee so that no one slides into destitution we are dependent increasingly on the old-fashioned means test in various forms. This is disastrous. It means that millions know instinctively, or because they have made the necessary calculations, that there is not too much point in working or in saving.
Hon. Members in all parts of the House, and especially those on the Government Benches, know that the success of our economy, and of living together as a society, depends on people recognising the value of thrift and hard work. If 14 million come to realise that there is something wrong with those motives and that they are not borne out by the way in which life treats them in practice, that is disastrous. If it is true that the number in that position is rising steadily, it is a matter that requires the urgent attention of the House.

Mr. Frank Field: Does the hon. Gentleman accept that there is another rather dangerous tendency, which is that of individuals continuing to recognise the value and importance of hard work, but not that of combining hard work with honesty? In other words, they are not declaring their incomes. The more we push people towards means testing, the more we shall increase the incentive to engage in deception.

Sir Brandon Rhys Williams: That is an important part of what I have described as the approaching administrative collapse. The black economy is attracting people more and more because they are losing their sense of honour as a consequence of the Government's system of redistribution. They know that more and more people are breaking the rules, and they are becoming increasingly disposed to break the rules themselves.
Another trend is reflected in the rising proportion of the population who want to have cash resources of their own. It is possible that this has something to do with long-term social changes, especially, perhaps, with female emancipation. In Victorian times women were willing to be dependent on the breadwinner, the male head of the household, to provide them with the money that they needed or such comforts as they required. They want now to be able to make their own choices. That is a phrase that the Prime Minister uses with considerable effect. People want to be able to make their own choices, but in the life that we lead we must have our own resources and have command over our own finances, if we are to make our own choices. That is one reason why there is increasing pressure for women to have their own special tax relationship. Many do not want to be regarded as chattels or adjuncts of their husbands. They want to have a one-to-one unisex relationship with the tax inspector, and I think that they are right in that.
If there are an increasing number of people who want to have discretion in the way in which they handle their own affairs, we must adapt our administrative system to meet that wish. Hon. Members on both sides of the House know that I am enthusiastic about child benefit. I believe that the rate of child benefit should be increased, and should certainly not be diminished. One of the reasons why it is such a popular benefit and has an almost universal take-up is that it is paid normally to the woman in the household, which allows her to exercise her own discretion and make her own choices, at any rate with that small part of the family's overall resources. The Government are fighting against a trend that will prove to be stronger than the Government if they think that they can eat slowly into child benefit and dimish it. I hope that they will not make that serious mistake.
Perhaps more important is the fact that millions of people are restrained from entering the working population, and even from taking on part-time work,

because they will commit an offence if they take part-time work at the same time as drawing various benefits. We must work our way towards a wholesale reform. I am disappointed that the Government do not appear to be doing any fundamental thinking on this subject.
I was a member of the Committee which considered the Social Security Bill, which has now gone to another place. I was even more convinced at the end of our deliberations than I was at the beginning that the Bill did not represent final answers to the various questions which I have posed and was not enough. I could not do more than vote against the Bill. At any rate, hon. Members know what I think.
What are we asking the Government to do? We must not lose sight of the fact — Opposition Members are open to serious criticism because they do lose sight of this—that one of the Government's primary requirements is to secure the good health and expansion of the economy so that there are resources to be distributed. All too often Opposition Members forget that and call for increases in benefits without explaining how the money is to be generated.
Much of what the Government are doing is right, but I believe that the changes that they are making in the tax system and the provisions that they are making for investment are not sufficient. I hope that they will find ways of breaking through the social security system quickly and introducing a radical overhaul of the system and its administration. It is not good enough to continue from month to month and year to year with DHSS officers being required to make more than 90 million manual entries every week to keep the administrative system going. A much more urgent matter than Ministers recognise is to get something done about that appalling state of affairs.
I understand that progress with the computerisation of the pay-as-you-earn scheme is going very well. Much of the hardware is well on the way to being installed. The restraints that have held us back from a radical reconstruction of the system of income tax and social security are being eliminated at a practical level. The development of the necessary software for the pay-as-you-earn system is still taking a long time. The work should never have been embarked upon before thinking had been done about the sort of service that was wanted.
I ask my right hon. and hon. Friends in the DHSS and the Treasury to think again about the way in which the long-term evolution of the redistribution of incomes is heading. I am sure that it will be agreed that as individuals increase their income they cannot face a sharp reduction in their entitlement to benefit. Millions are entitled to benefits through one or another of our various systems. and we recognise that whenever they lose their benefits sharply there is a disincentive to increase their resources beyond that point. Tapering has become the order of the day. Rather than taking away their benefit on a taper, surely it would be simpler to make them contribute more as their incomes rise through the income tax system. Let them retain their benefit and require them to make a greater contribution through the income tax system. The loss of benefit must be partial if there are not to be disincentive effects. Let the loss of benefit express itself through the payment of more income tax. That would avoid the problems that arise when benefit is eliminated stage by stage as someone's circumstances improve. May we have a promise today, or very soon, that the Government will reconsider this problem in the


recognition that the various measures which they have brought forward in recent years are not sufficient to meet the case?

Mr. Archy Kirkwood: I enjoyed listening to the speech made by the hon. Member for Kensington (Sir B. Rhys Williams). He has a distinguished history and reputation and he argued the case for wholesale reforms. As the hon. Member for Birkenhead (Mr. Field) recognised, the hon. Member for Kensington voted accordingly in Committee. I certainly pay great attention and regard to that.
I agree with many of the arguments presented by the hon. Member for Kensington on the need for wholesale reform. I accept the mild rebuke that he made in the direction of the Opposition Benches about the source of the resources needed to generate the money to enable the redistribution of benefits. I hope that all hon. Members will address that point.
When the Minister of State introduced the debate on the detail of the uprating orders, he mentioned the current context. That is an important element in the equation which we must not ignore.
I begin by admitting that the reduction in the rate of inflation to the present level of around 3 per cent. is a valuable contribution to those people who rely on benefits for their income. However, I am worried about the disparity, which has continued to widen since the Government came to office, between the best-off and the worst-off in our society. I eschew the sophisticated statistics that can be floated about that argument from both sides of the House. I am worried about the distance that now exists. In spite of the Government's best endeavours to try to improve the position, there is evidence that persuades me that the gap between the best-off and the worst-off is becoming worse.

Mr. Michael Forsyth: Would the hon. Gentleman be worried if the gap between the worst-off and the best-off was widening if the consequence was that more wealth was created in order to meet the benefits bill, to which he referred at the beginning of his speech? Will he acknowledge that that is happening?

Mr. Kirkwood: That is not happening. We could have an interesting discussion about the relative positions of the lowest 10 per cent. of our society in terms of generating income and their available disposable income and as to whether they are worse off now than at the beginning of the Government's term of office, but I would like to return to my second point in the context of today's debate.
The Government seem to be set on the road to further tax cuts as opposed to the redistribution and increased transfer of payments. The DHSS should make the position clear. The Liberal and Social Democratic parties voted against the 1p reduction in income tax, as the Parliamentary Under-Secretary of State will be aware. That is only a partial answer to the problem, but we should go further than that. I do not know how the figures match up, but we must be prepared to face the fact that we may need to maintain levels of taxation to obtain the money to redistribute benefits.
The formulation of the Government's policy on that question is absolutely crucial. I hope that we will hear from

the Parliamentary Under-Secretary of State when he replies that he will ensure that resources are found even if that involves forgoing the Government's present policy.

Mr. Favell: We never hear the Opposition referring to the question of incentives on these matters. Does the hon. Gentleman accept that tax cuts produce an incentive to work harder and to save more for old age and bad times? The greater the tax, the less incentive there is to work. What does the hon. Gentleman think about that?

Mr. Kirkwood: I agree that a balance must be struck. That balance has gone wrong in terms of the amount of income that we are asking pensioners to live on. I hope that the Parliamentary Under-Secretary of State will comment on that.
There is a fear across party lines about the operation of child benefit. The hon. Member for Oldham, West (Mr. Meacher) referred to that point and I want to support his comments and those comments made on the matter by other hon. Members, including Conservative Members, in previous debates. There must be a commitment at least to retain the value of child benefit in future. I understand the Minister of State's reply to that point, as he has the Treasury Ministers at his shoulder and he may not be able to go further than that this afternoon. However, I warn the Under-Secretary that if there are cuts, such as the 35p reduction, he will face a major rebellion from the Opposition Benches and from the forces that sit behind him.
I hope that the Under-Secretary of State will be able to clarify matters about the retail price index. That is a rough and crude instrument to measure the increase in prices. Has the Minister had a chance to examine a report commissioned by the Chartered Association of Certified Accountants and carried out by the Institute of Fiscal Studies called "The RPI and the cost of living"? The report reached several conclusions. It stated that the Government had been paying more than they needed in terms of uprating benefits for substantial periods during the past 10 years. To support my argument, the report states that the poorer families in our society suffer more and the real costs of inflation, rather than the statistical calculations, are significantly higher than the general increase in the RPI. I hope that the Department will study the report with care. The Department needs to refine the retail price index in a way that would benefit the least advantaged families in society.
Under what circumstances does the Under-Secretary of State believe that the Social Security Advisory Committee report's recommendations will be implemented when it states that there should be not every year, but occasionally, a linking of increased benefits to earnings so that an inexorable disparity does not appear between the increase in the cost of living enjoyed by people in work and those who are dependent on benefits? There was a case to consider this year for moving towards the average earnings increase.
We have heard that there has been almost a 7·5 per cent. annual earnings increase, which is 6 per cent. higher than the tax and prices index. Can the Under-Secretary of State tell us whether these figures, like the figure of £8·80 annual loss caused by the disposition of the timing of the payments of the increase, will be made good in the round eventually? It is very important that losses sustained because of the timing of the uprating—which was unfair —should be made good.

Mr. Michael Forsyth: I have been waiting so long to intervene that I have nearly forgotten my point. However, if the hon. Gentleman is so concerned about wealth creation and finding the resources to meet a decent social security system — which we all want—how does he reconcile that with the view that benefits should be indexed according to earnings if the earnings are over and above the country average? That would be a recipe for creating a benefit system which we could not possibly afford. That is the opposite to what he was arguing for.

Mr. Kirkwood: I do not understand why it is difficult, improper or in any way impossible to increase benefits according to the increased average earnings. If average earnings are increased, the tax take increases and that would mean more money to be redistributed. There is no difficulty about that.

Mr. Forsyth: The difficulty is that, if, as is happening at the moment, the country is paying in wages more than is being earned and we index benefits accordingly, we will have a monstrous bill which will he paid for only in the destruction of other people's jobs and a higher bill which we will not be able to meet. That would be the consequence of the hon. Gentleman's policy.

Mr. Kirkwood: I fully accept that. The hon. Gentleman takes us into public sector pay and price and incomes policies. We would face up to that by ensuring that there is a system that ensures that people do not get paid more than the country can afford.
The hon. Member for Oldham, West mentioned the Christmas bonus, which is being substantially eroded. Do the Government have any plans to try to make it as valuable as it would have been if it had increased in line with prices or earnings? Its value has been largely discounted. Something must be done about that.
The Government could have done a bit more without breaking their back. I am most anxious that the Minister should be prepared to go into the current public expenditure round with some of the issues that I have outlined in the front of his mind so that he will fight for his Department's budget and so that he can redistribute more in future.

Mr. Kenneth Carlisle: I should like to make my speech in the context of the general background to the proposed increases. It is generally recognised that the Government promised to ensure that benefits would increase at least in line with inflation. What is proposed accords precisely with our promise to the country at the general election, which has been repeated during the past few years.
We should consider the overall level of inflation. The increase in benefits must be related to the increase in prices. There is no doubt that inflation is the greatest threat to people in receipt of benefits. They are generally those who most need support and they are often the weakest. High inflation and rapid price rises undermine people's confidence. When they go to the shops to buy the necessities of life they see increases each day, but the increase in benefits lags well behind price increases, so people do not understand how they can possibly keep up. The elderly who have some savings see high price increases destroying their life's work. Price increases eat away at savings that have been made over many years of work.
Inflation has a bad effect on people who both major parties say they want to help. The hon. Member for Oldham, West (Mr. Meacher) was completely wrong to say that inflation does not matter and that the important thing is the increase in benefit after taking account of inflation. He showed a great misunderstanding of the worry caused by inflation. It is a matter of peace of mind. In a period of high inflation, the confidence of pensioners, one-parent families on benefit, the unemployed and people in receipt of housing benefit is greatly affected, as they simply do not know how they will meet increased prices in the shops.
In times of high inflation, the weakest suffer most. That has been proved time and again. It is important to such groups, therefore, that inflation is kept low and that price increases are conquered. There are other effects of high inflation. Declining currency value and rapidly rising prices destroy the morality of a country. We get used to, a declining currency and become cynical about it, and we no longer pursue sound values which give hope for the future.
Another effect is unemployment. There is no doubt that the inflation of the 1970s and early 1980s bred unemployment. Businesses found that they could not sell their goods competitively on world markets, and they continually sought more cash to replace stocks to make products. The strains on business, failures and a fall in growth, or even decline, have an inevitable effect on jobs. All those effects of inflation can be seen throughout the country, but it is the weakest who suffer most. That is why the Government should take credit for keeping price rises low, and why their main aim should he the continuing control of inflation.
It is important that people who are in receipt of benefit have confidence in the system that is used to calculate increases. In that respect, I echo what the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) said. Are we certain that the system is as good as it should be? Does it reflect the costs that people on benefit and the elderly have to meet every day? Such expenditure is quite different from that of someone in a well-paid job. I am aware that our statisticians refine the system occasionally, but it should receive continual examination.
We must also consider the economy as a whole. As my hon. Friend the Member for Kensington (Sir B. Rhys Williams) said, we must pay for the increases. It is no good promising the world. Indeed, it is evil to promise the world when one does not have the means to provide it.

Mr. Marlow: My hon. Friend mentioned increases. Is he aware that, despite the massive increase of last year, the value of child benefit and child tax allowance — the benefits that we give per child—is now £2·70 less than it was in 1955? Whereas there have been increases in some areas, assistance for families with children, especially those with significant numbers of children, is now much less than it was in 1955.

Mr. Carlisle: My hon. Friend has gone back to 1955. I suppose that I must have been in receipt of child benefit then. I cannot recall what the level was. Matters have changed so much that it is not very helpful to go back that far, but I believe that since 1979 the real value of child benefit has increased.
Before my hon. Friend the Member for Northampton, North (Mr. Marlow) made that rather interesting


intervention, I was considering the overall economy. When promising massive increases in social security payments, the Opposition have a responsibility to consider what they hope to achieve. They must face the reality of how they will pay for the increases. They have promised increased social security payments and increased expenditure on the industrial front, the Health Service and education. There is not a programme that has not been promised extra money.
My right hon. Friend the Chief Secretary has estimated that to pay just for the Opposition's firm promises would require £40 billion of additional expenditure each year, to be carried on year after year. To pay for that, the Opposition would, for example, have to increase VAT to 42 per cent. Such an increase would have a devastating effect on a whole range of people who receive benefit. If the Opposition do not pay for that expenditure by increasing VAT, they will have to raise the money, if they are honest, by some other form of tax, which will have to be paid by all taxpayers, including those in receipt of benefit. The alternative is to borrow. In that case, inflation and interest rates would increase, with all the evil effects that I have already mentioned.
The Opposition's promises are given blandly, but no doubt with genuine sincerity. However, any analysis leaves one sceptical of them, especially given the havoc that would be wrought on the country's economy if those promises were carried out.
Our record of controlling inflation and of trying to get the economy on a course for growth has not been bad and should not be scorned. My hon. Friend the Minister described how we now spend £43 billion a year on social security. That is 30 per cent. of all public expenditure. All benefits have increased by more than the rate of inflation since 1979. The new benefits have also substantially helped the worst off. As my hon. Friend the Member for Stirling (Mr. Forsyth) said, one has to tie any increase in social security directly to the economy's ability to earn the resources to make those increased payments.
I now wish to concentrate on the reform of the social security system. We are talking about one of three upratings over 18 months. The uprating will move forward to April. Thus, we are looking not at an annual uprating but at one for a shorter period when the rate of inflation is low. We are honouring our promise. Many of my constituents will welcome the annual upratings when they move forward to April. I have always received many complaints about the fact that the upratings have been delayed until the autumn. We genuinely welcome the move to April.
I also welcome the reform of social security that is being undertaken. It is generally recognised that, despite the thousands of millions of pounds spent on our social security system it is not directed at the right people. For example, it is accepted that one-parent families and families on low earnings have fallen behind. It is right that we should undertake a substantial review of the social security system so that the large resources available are directed to the right people.
My hon. Friend the Member for Kensington, who has given deep thought to this issue, raised an important point, with which I agree, when he said that the present social security system is far too complex. Even when it has been reformed, it will be difficult to understand it. I urge the

Government to reconsider the reforms to see whether, with the aid of computers, they can link tax and social security. In this way we could avoid the absurdity of people receiving social security and paying tax. Given the will and the technology that we now have, it must be within our means to devise a much simpler system.
I am glad that I have taken part in the debate, and I shall end by returning to my main theme. Inflation is the worst enemy. Indeed, rapidly rising prices are the worst enemy of all those on social security. If inflation stood at 100 per cent., we could easily double social security benefits annually. That would look very good on paper, and the hon. Member for Oldham, West clearly would not mind that, but I assure him that much agony would be caused to those of our constituents who are on benefit and who are poor. It is they who would suffer most.
The Government's aim to increase social security at least in line with inflation is good. We have honoured our promise. I have no doubt that when the economy generates the necessary wealth those on social security will in turn benefit in a far more stable way, which will give them, not worry, but more security in future.

Mr. Frank Field: I am sure that the hon. Member for Lincoln (Mr. Carlisle) will understand if I do not take up all the points that he covered in his wide-ranging speech. However, I should like to comment on a few of them. He concentrated on inflation. I hope that hon. Members will read carefully the speech of my hon. Friend the Member for Oldham, West (Mr. Meacher). I thought that for the first time I noticed a much greater realisation of the importance of inflation in terms of both crude politics and votes, and of what it means to our supporters.
I do not follow the line that a Labour Government need worry only about those on statutory benefits. Many of our supporters have only small savings by comparison with the Government's supporters. One could easily construct an argument that those small savings are more important to the saver. Indeed, those of greater means have more expertise available to them and are far more able to protect their wealth than those with small savings.
I therefore took the speech of my hon. Friend the Member for Oldham, West to be very coded. I understood that he was coming round to the view that a Labour Government would not embark on public expenditure policies and discussions on wage levels that would lead to a rapid increase in prices. We need to think that through carefully and to put it with care to the electorate so that those who vote for our package know the price and the responsibilities that will have to be paid by them in seeing that programme through. It will come as no surprise to those who have heard me speak before that I believe that that means that part of our programme must involve policies on levels of prices, wages and salaries. I make no excuse for that. It is crucial. No one in his right mind would want to return to the inflation levels that existed under this Government and under the previous Labour Government.
Rising prices have a terrifying effect on those at the bottom of the pile. The closest analogy is perhaps with totalitarian regimes which want to create such uncertainty that people do not know what will happen to them next. That is the effect of rapidly rising prices on those who have least. I therefore welcome what I understood to be a coded


message from my hon. Friend the Member for Oldham, West. I hope that we shall become clearer as the election approaches.

Mr. Marlow: Will the hon. Gentleman give way?

Mr. Field: The hon. Gentleman may entice me to give way later. Many hon. Members wish to speak in the debate. I enjoy interventions, but I am aware that time is limited.
The hon. Member for Lincoln echoed the comments made by the hon. Member for Kensington (Sir B. Rhys Williams). It is rare for me to disagree with the hon. Member for Kensington, who is held in an esteem in the House on a par with few other hon. Members. That is not just because of the knowledge which he brings to our debates, but because of the firm resolution with which he is prepared to see those views through in the Lobby, even if it means voting against the Government. It is easy for Opposition Members to do that, but it is much more difficult for a Government supporter.
The hon. Member for Kensington said that we should aim for a system of combining taxes and benefits. I wonder whether that is the best way forward. Those who set the policies for benefits and those who set our tax policies should know what each is trying to achieve. Have we reached the stage when we can move safely towards combining taxes and benefits?
My hon. Friend the Member for Fulham (Mr. Raynsford) will no doubt talk about housing benefit. It is worth remembering that, when that reform was introduced, we were told that it was a simple reform. That simple reform has become a nightmare for our constituents and ourselves. If our ability to understand the world is so limited that this simple reform became such a God-almighty cock-up, what will happen with a big issue such as combining taxes and benefits? Most of us would be resident seven days a week in our surgeries trying to answer queries. I will not support the growing consensus for a combination of taxes and benefits. I want both sides of government to talk to each other occasionally, to understand what their objectives are and not to have contradictory policies.
I shall present in straightforward Tory language some of the arguments which I hope the Government are presenting to the Treasury on child benefit. The DHSS has had and will continue to have a battle with the Treasury over child benefit. That is why, when the uprating statement was made, I welcomed the 10p increase in child benefit. I was mindful of the Government's record the previous year, but, given that the Treasury was aiming for child benefit not to be increased this year so that it could be established that child benefit was not normally increased when other benefits were increased, that was a crucial battle won by the DHSS.
When we debate next week the private Member's Bill to be introduced by the hon. Member for Kensington, we shall have an opportunity to vote on child benefit. Although Ministers may protest otherwise, if many Conservative Members joined us in the Lobby, especially those who have registered their views in early-day motions and in letters to pressure groups in support of child benefit and its automatic uprating, it would massively strengthen the Department's hand with the Treasury.
The arguments that the Department should pursue with the Government in Tory terms are as follows. First, among

all benefits, child benefit strengthens the family. The Conservative Government say that they are about strengthening the family, not in a paternalistic way with officials putting their sticky fingers into people's private lives, but by giving them the resources to build the lives that they want. That would add massively to people's dignity.
Secondly, for a Government who believe that they should not interfere with wages, at least not in the private sector, child benefit is important in lessening the pressure for massive wage increases by family wage-earners, who are often men, but sometimes women. Thirdly, the bigger the child benefit, the bigger the incentive to work, for the reasons that were outlined by the hon. Member for Kensington.
Fourthly—this is the flip side of the coin—the bigger the benefit, the easier it is for people to remain honest. I note the decline in standards of honesty in our society, and it is harder for people at the bottom of the heap to abide by public notions of morality than it is for people who have bank balances. It is absurd for us to expect the poor to be more righteous than others. One reason why I want a Government who will campaign against poverty is that poverty is not some warm overcoat in which people happily shuffle round, but an evil that destroys them. That is part of the reason why people behave less honestly than they might otherwise do.
The fifth Tory reason for indexing child benefit along with other benefits is that it maintains tax equity. The only way in which we can ensure that we do not shift the tax burden from single people and childless couples to people with children when we increase personal allowances is to increase the tax-free income of those with children by a similar amount.
The sixth reason is the effectiveness of child benefit in tackling poverty. Although I would have put that at the top of the list, it does not come first on the list of Tory priorities.

Mr. Marlow: Could I add a seventh reason why Conservative Members should support child benefit? That is the paradox that those in work used to receive a child tax allowance. Child tax allowance no longer exists; we have child benefit instead. The reality is that, when there was child tax allowance, Conservative Members would accept its indexation and thought it was right and proper. Now some Conservative Members feel that child benefit should be given only to selected members of society. If we move in that direction, as the hon. Gentleman said, we would be taking money out of the pockets of families and putting it elsewhere. I believe, as the hon. Gentleman believes, that that is no thing for a Conservative Government to do.

Mr. Field: All that I would add to the hon. Gentleman's helpful intervention is that it would not just be taking money from the pockets of families; it would be putting money into the pockets of single people and childless couples. I said earlier that the Government told us proudly that they support the family.
I disagree with the hon. Member for Lincoln on another point. As I walk round Birkenhead, I am not set upon by many people who say that they long for the uprating date to be changed to April. I have had no inquiries about that. The Government are changing the uprating date to April because it is more convenient for


them, not for my constituents or those of other hon. Members. That being so, the Government are duty-bound to ensure that, in the changeover to April, no beneficiaries will lose in the process. I do not argue that it is a mean-minded, miserable little uprating. If inflation was a little more than 1 per cent., and we linked benefits to prices, benefits would increase by only a small amount. However, some of my hon. Friends feel strongly on that point. As the change is for the Government's convenience, they are duty-bound to ensure that people will not be made worse off as a result of the move.
The evidence that I presented earlier from the Child Poverty Action Group brief — the hon. Member for Northampton, North (Mr. Marlow) has a copy with him — shows that there will be a small, but significant, reduction in the increase in benefit as a result of the changeover. A married couple in receipt of supplementary benefit will be a little less than £10 a year worse off. We must tell the Government that losses of that size, which may be unimportant to hon. Members but are crucial to many of our constituents, should be made up. The most effective way of doing that would be to grant an additional Christmas bonus or to introduce a new summer bonus.

Mr. Michael Forsyth: I look forward to studying in the Official Report tomorrow the speech made by the hon. Member for Oldham, West (Mr. Meacher). I listened to it carefully, but I could not break the code to which the hon. Member for Birkenhead (Mr. Field) clearly has access, which apparently tells us that the hon. Member for Oldham, West is in favour of keeping down inflation and recognises, if I may say so without embarrassing the hon. Member for Birkenhead, the powerful argument that he advanced that high inflation hurts most the poorest and the pensioners in our society. The name of the game in this debate is not to argue about which Government would give the largest upratings in benefit, but which Government are capable of producing the largest increases in real terms and creating the conditions which enable the private sector to generate the wealth necessary to meet the bills.
When listening to the hon. Member for Oldham, West, I thought he was saying that inflation was not important in considering those who were poorest in our society because they are covered anyway by indexed benefits. At the risk of saying something that has been said many times, the hon. Gentleman—he is not here, but I dare say that he will study the Official Report—would do well to read again the remarks made by the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) who pointed out that inflation is the father and mother of unemployment. While the hon. Member for Oldham, West is happily creating inflation in order to fulfil promises rashly made, he will be putting more and more people out of work, who will present yet further demands upon the social security system.
I want to explore the central part of the argument of the hon. Member for Oldham, West, which was whether it was better to have a system which indexed benefits according to prices or according to earnings. Of course, he said earnings because the Labour party is the caring party and is therefore in favour of providing more. That is the deception which he presents to the House and to the

country. The reality is that if we were to embark on that path—to his credit, the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) changed his view half way through his speech, having started off on that path himself — it would result in our having commitments to the poorest in our society which we simply could not meet.
The reality is that even under a Conservative Government, who are determined to control inflation and public expenditure, we are paying ourselves more than we are earning. We are paying ourselves, as we have done for more than a generation, well beyond what we are producing as a nation. If we continue to do so, it will be the poorest who will suffer most and more people will lose their jobs. If we were to follow the prescriptions of the hon. Member for Oldham, West, we would be asking my right hon. Friend the Chancellor of the Exchequer to add to the burden on the wealth-creating sector. We would be penalising those elements in our economy which are capable of generating the resources which we need to meet our obligations.

Mrs. Margaret Beckett: I am listening with great care to the hon. Gentleman, just as I listened with great care to his interventions in the speech of the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). I should be grateful if he would explain a little more the point that he is making. On the one hand, he is saying that there should be more wealth creation. He raised that first in his point on greater incentives. Therefore, he is presumably arguing that people in work should be paid more and that the tax burden should be less, and so on. On the other hand, he is lambasting people who are in work for being paid too much. It is not clear to me how he reconciles those two sides of his argument. I am sure that he does, but I am fascinated to know how.

Mr. Forsyth: I am grateful to the hon. Lady. I think that I can help her out, and I hope that she will abandon the policies which are based on such ignorance. The position is simple. I am arguing, not for higher pay, but for higher take-home pay by reducing taxation. If the Government succeed, as I am sure they will, in reducing the basic rate of income tax still further, the effect will be that those on average or below average earnings will have higher take-home pay and the pressure on employers to provide inflationary pay increases which are more than has been generated by increases in productivity will be reduced. One of the key reasons why it is important to reduce the burden of taxation on those in work is to moderate wage demands,. If we succeed in moderating wage demands, we shall be more competitive as a country, we shal generate more wealth and, in turn, increase the overall revenues from a lower rate of taxation. That is the first side of the equation.

Dr. Godman: Now we shall move on to privatisation.

Mr. Forsyth: I should be happy to follow the hon. Gentleman down that road.
The crucial part of the argument is surely that to increase Government commitments in the form of increases in national insurance or taxation in line with artificial increases in pay is to store up problems for the future. The gap will be filled only by borrowing or printing money, which in turn will create more inflation, which in turn will mean that more money has to be found to meet the indexing of benefits which are the consequence of a rise


in prices. That is a spiral of decline. That is exactly the position in which the previous Labour Government found themselves.
The sheer hypocrisy of the hon. Member for Oldham, West takes the cake. He comes into the Chamber and berates the Government for not increasing the Christmas bonus. I should be happy to see it increased by 10,000 per cent. plus £10 on the levels that were paid by the Labour Government in 1976 and 1977, because a 10,000 per cent. increase on nothing is nothing.

Mr. Marlow: Was there not another misunderstanding in what the hon. Member for Derby, South (Mrs. Beckett) implied? I think she was saying that there was no difference between increased pay and reduced taxation because the benefit to the worker is the same, but there is a massive difference. If pay is increased, the cost of production is increased and unit costs are increased. We become less competitive and lose masses of jobs. is that not one reason why the Labour party seems to be at odds with any understanding of economic policy?

Mr. Forsyth: I am grateful to my hon. Friend. I completely support his analysis, although I would not go along with the views that he expressed earlier on child benefit. I shall come to that.
The other extraordinary thing about the views of the hon. Member for Derby, South (Mrs. Beckett) on tax cuts—

Mrs. Beckett: I have not yet had a chance to give my views on tax cuts.

Mr. Forsyth: I shall gladly give way to the hon. Lady so that she can give us her views on tax cuts, if she cares to do so, but I understand that the position of her party, which I assume she supports, is that it does not think there should be tax cuts. Indeed, several Opposition Members have argued that tax cuts are irrelevant and that what we should do is help pensioners. They all seem to have forgotten that 2·4 million pensioners in Britain pay tax totalling £2·9 billion, which is 9 per cent. of the total tax take.
Yet again we see an inconsistency in the Opposition's argument. which was clear in the promises made by the hon. Member for Oldham, West. He was busily telling us how he would take back all the money that the Government had given away in tax cuts and use it to fund his promises. He mentioned directors earning over £30,000 a year. If we tax people with earnings of over £30,000 a year at 100 per cent., it will be done once, because on the whole people do not work for nothing, as one of my hon. Friends has pointed out, and that will raise £1·8 billion, which will not get anyone very far down the road towards meeting the cost of the bill which would arise from the promises made this very afternoon alone by the hon. Gentleman. Opposition Members must come to terns with the fact that there are simply not enough of the Tory fat cats whom they dream about to meet the bills which a Labour Government would generate. Indeed, the hon. Member for Birkenhead was moving in that direction in his speech.

Mr. Frank Field: We shall make a start.

Mr. Forsyth: When the Labour party does that, it will end the whole process of wealth creation, making life even more intolerable for those whom it seeks to represent.

Mr. Frank Field: The hon. Gentleman's argument that if we reimpose the level of taxation that existed under the Labour Government we will receive no additional revenue in year two is clearly fallacious, because the Labour Government continued to raise revenue. The hon. Gentleman shakes his head. It is disconcerting to stand up and face the Tory Benches, only to see brightness and light. Normally when I face Tory opponents that is the last thing I expect to see. To correct the hon. Gentleman through the sunlight, we are thinking not of imposing a 100 per cent. tax on incomes above £30,000 a year, but of reverting to the previous level of taxation, which continued to raise a certain sum even under the Labour Government.
The argument that cutting taxation would lead to lower output puts the hon. Gentleman into equal difficulties, because there is not much difference between the growth rate under the Labour Government and that during the whole period in office of this Government. It may be that tax cuts are not the panacea for a relatively high growth rate in the British economy.

Mr. Forsyth: The hon. Gentleman is asking me to resolve a difficulty which exists in the Labour party. The Leader of the Opposition has said that a Labour Government would not increase taxes for those earning less than £30,000—he started with £20,000 and changed the figure to £30,000. Having set those guidelines, I am merely pointing out that if one taxes all earnings above £30,000 a year at 100 per cent. that will raise £1·8 billion, which does not go far towards the £25 billion programme of additional expenditure to which the Labour party is committed. Nor does it go far towards meeting the promises made this afternoon.
I agree with the hon. Gentleman that if one wishes to embark on a programme such as he would wish one must tax people who at present are paying tax at the basic rate. There are 18 million people on or below average earnings who, as it is, face penal rates of taxation. It is not in the interests of the country or of eliminating poverty to increase the tax burden on them which would be the consequence of the policies to which the hon. Gentleman is committed. He must address himself to that.
The hon. Gentleman argues that wealth will be generated despite penal rates of taxation on the rich. That is an ideological difference between us and he will have to work extremely hard to convince me that people who pay 98 per cent. tax, as they did previously, will continue to work within the white economy. I thoroughly agree with the hon. Gentleman's emphasis on declining moral standards and the increase in the black economy. That is a consequence of high taxation, and the hon. Gentleman must face the fact that if the Labour party's policies are pursued people will have a greater incentive to work in the black economy and to make demands on the social security system. The hon. Gentleman raised an extremely good point, but it is one which his party needs to resolve and which it has singularly avoided doing today.
I disagree with what my hon. Friend the Member for Northampton, North (Mr. Marlow) said about child benefit. My hon. Friend the Member for Darlington (Mr. Fallon) put it in a nutshell when he asked why we should pay tax-free benefits to duchesses. It is a monstrous waste of money and resources to tax people who pay high marginal rates of tax only to pay their wives child benefit. I am happy to declare an interest, in that I receive child benefit. It is an immense tax-free perk, for which I am


grateful, but to have many bureaucrats collecting revenue from, and many others dishing it out to, the same family is not a sensible way to run a country. I would far rather see child benefit being taxed or not being available to those who earn high incomes and pay high marginal rates of tax, and instead being directed to families in greatest need. As an across-the-board benefit it is completely unacceptable at a time when we have finite resources and considerable demands.

Sir Brandon Rhys Williams: Does my hon. Friend agree that the simplest way to increase the tax burden on people earning high incomes is to increase the higher rates of tax, not to take away their child benefit? To take away child benefit simply means that they are less well off. If one wishes to penalise high earners, which seems to be the gist of what my hon. Friend is saying, the simplest way to do that is to raise their rate of tax.

Mr. Forsyth: Clearly I have picked up some of the code of the hon. Member for Oldham, West, because my message was somewhat different. I am not in favour of increasing the tax burden on anyone. On the contrary, I should like to see it reduced, because that will result in an increase in the wealth generated. I believe that by reducing tax rates we can increase Exchequer revenue, which has been the United States' experience.
My desire to see child benefit not being paid to those on high incomes is not based on a desire to see those people paying higher rates of tax. I simply think that it is madness to have two bureaucracies involved in transferring money from one pocket to the other. Most families with high incomes—I gave the example of duchesses—do not need child benefit to look after their families.

Mr. Frank Field: Fortunately or unfortunately, depending on one's political perceptive, the country is not made up of duchesses. First, there is a difference between making child benefit selective — in other words, only paying it to poor families — and taxing it. There may well be a case for taxing child benefit, provided the revenue goes back into child benefit and increases its value. Secondly, if the hon. Gentleman wants to abolish child benefit—this question was implicit in the intervention of the hon. Member for Northampton, North (Mr. Marlow)—how will he maintain tax equity between those with children and those without children? In other words, how does he propose to increase the tax-free income of those two groups on a par? How will he avoid transferring the tax burden to those with children?

Mr. Forsyth: There are opportunities to do that through the new social security system.

Mr. Frank Field: What opportunities?

Mr. Raynsford: How?

Mr. Forsyth: Through family income. [Interruption.] I agree with the hon. Member for Birkenhead that the country is not made up of duchesses. The hon. Gentleman is something of an expert in this area and he knows the figures. He knows that we are paying well over £1 billion in child benefit to people on well above average earnings. I should like to see that money redistributed to those in greatest need. I do not have a strong view about whether

that should be done through taxation or by some other process. At present the system is wasteful and creates an unnecessary dependancy.

Mr. Frank Field: Will the hon. Gentleman give way?

Mr. Marlow: Will my hon. Friend give way?

Mr. Forsyth: I may be short in the tooth, but I know what I am interested in. I give way to the hon. Gentleman.

Mr. Frank Field: The hon. Gentleman says he does not have a strong view on this issue. I do not want to be unkind to the hon. Gentleman, because he has given way to me, but the feeling that I had was that on this matter he did not have a view at all. When pressed to take his argument beyond the slogan, he was hard pushed, to put it politely, to suggest how his alternative would work. I urge him to think carefully after the debate about the points that he is putting to the House and about how in practice his suggestions could be implemented. I do not believe that they could be.

Mr. Forsyth: If the hon. Gentleman is pressing me to express a view, I have to say that I would prefer a tax on child benefit, but that has the great disadvantage that it does not overcome my principal objection, which is that we would still have large numbers of bureaucrats giving out and taking back money. That would mean that less money would be available for the pockets of the families who needed it.
I should like to return to my broad theme, which arises from the speech of the hon. Member for Oldham, West. The Opposition make promises which they cannot possibly fund or keep, and they direct the whole of their energy to misrepresenting the real benefit achievements and the benefits to the Health Service that have been made by the Government.
The most astonishing thing about this uprating is that it costs £420 million, and we are being attacked by the Opposition and by people outside the House over the small percentage increase which arises as a result of our success in reducing inflation. If Britain were ever to be "blessed" with a Labour Administration with a commitment to create inflation of the sort that we heard about from the hon. Member for Oldham, West, the cost of simply meeting the obligations to keep up with prices would be so enormous that the Labour Government would be unable to meet the existing commitments to the benefits system.
The hon. Member for Oldham, West told the House that the Government's record on the Health Service was a disgrace and that it was repudiated all over Britain. To say that shows as much nerve as the nerve that he had when he spoke about the pensioners' Christmas bonus. The last Labour Government made cuts in the Health Service capital programme and cut the spending programme. That is in contrast to the present Government's record. I did not intend to speak in this debate until I heard the hon. Gentleman's speech, but perhaps I could conclude on a lighter note. I obviously missed the code defined by the hon. Member for Birkenhead, but as I listened to the Opposition speeches I was reminded of the lines by Kipling:
Dreaming of things they meant to do,
All complete in a minute or two,
Something noble and grand and good,
Won by merely wishing we could.

Mr. Nick Raynsford: I shall confine my remarks to the upratings in the housing benefits scheme and ask for the indulgence of the House for going into relatively complex and difficult calculations. I have to do that because this is a difficult and complex subject. The increase in the needs allowance under the statutory instrument that we are considering is substantially less than it would he if the traditional formula that applied in previous years had been adopted. Therefore, it will be necessary to outline the traditional formula.
The needs allowance that has existed effectively since 1972, when a Conservative Government introduced a rent rebate and allowance scheme, has four elements. The first element is the supplementary benefit long-term scale rate; the second is 40 per cent. of the average council house rent; the third is 40 per cent. of the average rates; and the fourth is 100 per cent. of the average water rates. The logic behind that is that people who receive standard housing benefit, as it is now known, have an income that is generally above the supplementary benefit scale and have to meet a proportion of their rent and rates and 100 per cent. of their water rates. The formula was calculated to try to ensure that they are left in a broadly comparable position to people on supplementary benefit who receive a larger amount of assistance towards those housing elements.
This year the traditional formula has not been applied and the Government have said that they are applying the same increase to the housing benefit needs allowance as they have applied to the increase in the pensions, that is, 40p for a single pensioner and 65p for a couple. Let us leave aside for the moment the fact that that increase is insulting and derisorily small and has been almost universally condemned by people interested in the welfare of pensioners.
The critical question to be asked is: what would the increase in the needs allowance have been if the traditional formula had been applied? This is relatively easy to establish. We know that the supplementary benefit long-term scale rate being put forward by the Government for a single person is £37·95. Forty per cent. of the average council house rent, which is currently £16·57 a week, amounts to £6·63, and 40 per cent. of the average rates, currently around £7·50 a week, is £3, and 100 per cent. of the average water rates is £1·78. That gives a total of £49·36. Allowing for the normal practice of rounding that to the nearest 5p, we arrive at a figure of £49·35. That is the figure for the needs allowance of a single person had the traditional formula been adopted.
Instead of applying the traditional formula, the Government have brought forward a statutory instrument proposing that the actual needs allowance will be £48·10. That is, £1·25 a week below the amount that it ought to be. There has been no explanation from the Government about this shortfall and no apology for it. It has simply been presented to us in the hope that the obscure nature and complexity of the formula will result in no one noticing the difference. It is not a shortfall of a few pence, as one might have inferred from the speech by the Minister who opened the debate. He implied that there were various adjustments because it was only an interim increase, and that the amounts involved were only a few pence. By no stretch of the imagination is £1·25 a week a few pence: it is a significant shortfall.
What are the implications of that £1·25 shortfall? According to the last answer given by the Minister to a question that I put to him about a month ago, approximately 3·99 million households receive standard housing benefit. That is one in five of the population and represents a significant number of people. What is the average loss to those people because of this strange change in the formula for uprating their benefit? It is not £1·25 because, of course, the formula is complex. The £1·25 is the amount of the needs allowance, but the actual benefit depends on the amount of a person's income in relation to the needs allowance. If a person's income is exactly equal to the needs allowance, he will receive 60 per cent. of his rent and rates.
Someone whose income is exactly equal to the needs allowance will suffer a loss of 75p, which is 60 per cent. of £1·25. For those people whose incomes are above or below the needs allowance, the loss will vary, partly depending on how far the income is above or below the needs allowance, and partly depending on other factors. It is impossible to give an overall figure for every claimant, but. I should like to come back to certain parameters. For a person on the needs allowance, the average loss will be 75p a week, equal to £39 a year. That is the sort of loss that these people will suffer as a result of the Government's increase and the Government have not had the honesty to tell anyone about that loss.

Mr. Frank Field: Give way and allow the Minister to answer now.

Mr. Raynsford: I will give way to the Minister in a moment if he wants to reply.
If that loss of £39 a year applied to every housing benefit recipient—and I do not claim that it does—the total saving to the Government would be £155 million a year. That is a significant amount. In reality, I expect the Government's savings will be less because of the complex formula. I have consulted the Library on this, and it gave me the estimate that the total savings for the Government are likely to be about £100 million in the course of a year. We are dealing with a Government who are making covert savings of between £100 million and £150 million without having the honesty to tell the House about it. That is a serious matter.
I put these figures forward not in the confidence that they are precisely accurate because, as I have explained, a complex formula is involved and it is difficult to be precise, but because I have no other option. A month ago, I asked for detailed figures on this. I asked the Secretary of State for Social Services:
what savings in expenditure on housing benefit he expects to make in the 1986–87 and 1987–88 as a result of his proposal to increase the main housing benefit needs allowance in July 1986 by the same cash amounts as the retirement pension rather than according to the normal uprating formula.
The hon. Member for Huntingdon (Mr. Major) replied:
No comparison is available since the traditional uprating formula, which has sometimes produced reductions in entitlement in the past"—
that is an interesting comment because in my memory there has never been a reduction in the needs allowance—
could not be used on this occasion because the measurement period for the transitional July uprating covers only May 1985 to January 1986."—[Official Report, 12 May 1986; Vol. 97, c. 381.]
That was a convenient answer for the Minister because it allowed him to avoid facing the fundamental question about the amount of the saving.
Our complaint is that, because the Government have gone away from the traditional uprating formula, there has been a significant cut in housing benefit and a significant saving for the Government, about which they have not come clean. I notice that the Secretary of State is seeking advice on this point. I hope that he gets good advice so that he will be able to inform the House of it.
Who will lose as a result of these changes? In total, about 3,990,000 households receiving standard housing benefit will be affected. Of those, 2·63 million pensioner households will be affected, and will have losses inflicted upon them because of this covert cut in benefit. Some 1·5 million home owners and 1·85 million council tenants will suffer losses because the Government have chosen, secretly and furtively, to cut housing benefit, but have not had the honesty to admit to the House that that is what they are doing.

Mr. Major: Before the hon. Gentleman proceeds with categorical assertions such as this, I point out that it is within the recollection of the House that a few minutes ago he said that he does not have confidence in his figures. Until such time as he does have that confidence, I hope that he will make it clear to the House that his assertions are based on figures that have not yet been examined, and certainly not conceded by the Government.

Mr. Raynsford: As the Minister will also recall, I was talking about the number of households that will suffer losses. I have been able to give these figures categorically because the Minister gave me these figures in answer to a question that I posed a month ago. The figures that I said that I could not give precisely are of the total savings to the Government, because he declined to give me that answer. Therefore, I can state on the basis of his answers that about 4 million households are affected, including about 2·5 million pensioner households, 1·5 million owner-occupiers and 1·8 million council tenants. Those are the Minister's figures. The extent of the loss and the total savings to the Government I cannot give because those figures have been denied me. I hope that the Minister will answer that challenge.
I remind the House that this is not the first time that recipients of housing benefit have suffered loss at the hands of the Government. Some 2·2 million households lost benefit in April 1983 as a result of changes to the housing benefit formula at that stage. In April and November 1984, a further 2 million households lost as a result of further adjustments — cuts imposed by the Government that some Conservative Members had the courage to oppose. In April 1985, a further 90,000 households lost as a result of further changes involving people in areas with high rents, and in November 1985 a further 2 million households lost because of changes to the rate rebate taper formula, a complex issue.
The Government's cuts to the housing benefit scheme have caused extensive losses involving hundreds of millions of pounds. Additionally, the Social Security Bill, which the House recently considered, proposes further swingeing cuts in housing benefit, which will reduce benefit to millions of households and will give the Government a saving of about £450 million. On top of that, we have an unannounced cut that could involve the Government in savings of upwards of £100 million, about which they have not come clean.
What is the Government's case? The two possible answers that I sensed from the opening speech made by the Minister for Social Security were that the increase has been done in a way aimed at preventing administrative problems to local authorities and the DHSS caused by having different upratings for different benefits. That is a somewhat unconvincing argument coming from a Government who have consistently adjusted the formulae for housing benefit—often at short notice and involving considerable administrative problems for local authorities—to make cuts. Why is it that, on this occasion, when doing the thing properly would have been to the benefit of households in receipt of housing benefit, the Government are not prepared to do so? If they can make administratively difficult adjustments to make cuts, can they not do the same to be fair to claimants? Going on the basis of their previous cuts in housing benefit, that argument seems pretty crude and unconvincing.
The second argument that the Government may advance is that they could not adopt the formula because the uprating came earlier than usual and they did not have the information on the increase in rent and rates to make the assessment. This would be a convenient argument if it carried water, but it does not because the Ministers in the DHSS had only to ask their counterparts in the Department of the Environment what sort of figures they were anticipating for average rent increases in April this year and they would have had an answer. When the new needs allowance was announced by the DHSS, the Department of the Environment was giving advice to local authorities that it was expecting—and this was the basis on which subsidies to local authorities were being calculated—an increase in rents of about 65p.
It would be nice if there were more co-ordination between the Government Departments and if the DHSS actually spoke to the Department of the Environment and asked about these figures. Had it done so, it would have had a solid basis on which to make the uprating assessment. Sadly, this appears to be yet another occasion when the DHSS did not speak to the Department of the Environment about matters that require co-ordination for social policy purposes. One thinks of the long, sad history of the board and lodging allowance cuts, of the proposed cuts on mortgage support in supplementary benefits. In particular, one thinks of the housing benefit cuts, in which the DHSS appeared to be taking unilateral action that had a serious impact on housing policies, but did not have any discussion with the Department primarily concerned with housing policy before making its announcement. Those arguments are unconvincing. If there were a will, undoubtedly a way would be found to ensure that the proper uprating would have been given.
If the Government wanted to apply the normal formula, they could have found a pretty sound basis for doing so. Instead, they chose conveniently to ignore the traditional formula. It was convenient to them because their alternative formula cut benefit increases and substantially reduced expenditure. I shall be interested to hear what the Minister has to say about this.
This occasion contrasts markedly to what happened a year ago, when the DHSS made a swingeing increase in the non-dependent deductions under the housing benefit scheme of some 18 per cent., far ahead of the uprating in benefits. They justified it on the ground that there is an arcane formula used for assessing non-dependent deductions, although anyone in the know knows that that


is based entirely on owner-occupier costs and the majority of housing benefit recipients are tenants, so it is a most dubious formula. However, the Minister justified the increase on the basis that his time-honoured formula had to be adopted. If that logic was good enough when cuts were in the wind, why is it not acceptable now when claimants have a right to receive a proper and reasonable increase?
The Minister's arguments were unconvincing. A third argument that may be advanced is that this is only temporary because next year, when the April increase takes place, the rent increases that apply this April will be taken into account and it will all catch up in the end. That argument is equally unconvincing on two counts. Why should claimants have to wait that length of time in order to catch up and, secondly, in effect it will not be catching up because by that stage it will be a year after the rent increase before the formula comes into effect. In other words, there will have been a one-year time lag, as a result of which claimants will have lost money.
I can find no justification whatsoever for the Government's action. This proposed increase, which breaks the traditional formula, is a dishonourable action. I am concerned about the lack of any frank information and the Government's unwillingness to answer my questions. The House deserves proper answers from Ministers. In the absence of such answers we should insist on these regulations being annulled and instead insist on a fair and proper increase in the housing benefit needs allowance.

Mr. Martin M. Brandon-Bravo: I deeply regret that the hon. Member for Oldham, West (Mr. Meacher) is no longer present, because it was obvious from the way in which he delivered his speech that he believes his brief. He must also believe that the British people are just about the most gullible in the world if he thinks that they will swallow what he said. We were treated to a stream of telephone numbers in relation to the kind of money that the hon. Gentleman would spend if he became Secretary of State.
The hon. Gentleman ignores—and I know that his leader tries to ignore—the fact that he is not the only shadow spokesman who talks in telephone numbers when informing us of what Opposition Members will spend when they come to speak—I hope that they never do—from the Government Dispatch Box. Depending on which newspaper one reads, the figure varies between £24,000 million and £30,000 million more in a financial year—

Mr. Major: And that was before this afternoon.

Mr. Brandon-Bravo: My lion. Friend is quite right.
The hon. Member for Oldham, West ought to note what was said by his right hon. Friend the Member for Manchester, Gorton (Mr. Kaufman) just after the general election in 1983. I hope that the House will forgive me, because I do not have the Hansard with me, but I think that I paraphrase the right hon. Gentleman correctly. He said that his party had pledged additional spending of £17,000 million a year, that the British public would not be fooled and that his party's policy therefore lacked credibility. We are going through that same process again, and the Labour party's case lacks the same credibility.
I wish to speak about our pensioners, who constitute a substantial part of our population. They also will not

have been fooled by the speech of the hon. Member for Oldham, West. After all, those people grew up with very different values from those that the hon. Gentleman would support. They valued thrift and independence rather than dependence, a philosophy of which the Labour party seems to make a virtue.
The Labour party also seems to dismiss as irrelevant and unimportant those pensioners who have savings. I think the comment was made that there were not many of them.

Mr. Frank Field: The duchesses.

Mr. Brandon-Bravo: Not duchesses, Mr. Birkenhead, just ordinary working class pensioners who have put a little bit by for the eventual rainy day, and who after five years of Labour rule found that their little nest egg had become worthless.

Mr. Field: rose—

Mr. Brandon-Bravo: I shall not give way for the moment, because we are running short of time. We are not going down that road again —

Mr. Raynsford: rose—

Mr. Brandon-Bravo: The hon. Gentleman spoke for a long time and another of my hon. Friends or perhaps even another Opposition Member may still be waiting to speak.
All too often we tend to forget that at long last, after many years, people's savings that are locked away in building societies are now earning a greater return than the rate of inflation. That is important to many of our pensioners who want their savings protected and who rely on the little extra that building society interest gives them. As my hon. Friend the Member for Stirling (Mr. Forsyth) pointed out, it is foolish to talk as though squeezing the rich will be sufficient to deliver all the fancy promises that we have heard from the Labour party.
I think that it was at the Labour party conference in 1976 — [HON. MEMBERS: "Were you there?"] We all watched the television—that the right hon. Member for Leeds, East (Mr. Healey) then used the phrase that the Labour party would squeeze the rich until the pips squeaked. But as my hon. Friend the Member for Stirling said, he discovered that there were not enough such people to deliver the kind of promises that had been made by the Labour party, and at the end of the day everyone was paying more.

Mr. Andrew Rowe (Mid-Kent): It should not escape our attention that the view of the shadow Chancellor about who would need to be taxed more heavily changed markedly when he discovered the average take-home pay of a prison officer.

Mr. Brandon-Bravo: My hon. Friend makes a valid point. Indeed, the figure identifying the wicked rich has been raised from £20,000 to £30,000, because people do not have to hold very important posts for a husband and wife to discover that they are over the £20,000 limit. Those are the very families that the shadow Chancellor would wish to squeeze.
I hope that the hon. Member for Birkenhead (Mr. Field) does not think me patronising, but I believe that he was the first Labour Member at least to have the honesty to say that one must present a balanced package. Labour Members must be honest enough to say that, if they wish to spend astronomical sums, they must come to terms with


how they would raise them. The honesty of the hon. Member for Birkenhead is perhaps the reason why he speaks from the Back Benches rather than from the Opposition Front Bench.
Like Ministers, I share a sense of unease and uncomfortableness about the 40p adjustment. I know the reasons for it. I was delighted, as was everyone, at just how low inflation had fallen. On that basis, the 40p was technically correct. Some said that it was so small a sum that perhaps it should not have been paid at all and that the payment should have been left until April. I have no doubt that if the Minister had taken that view we should have heard an even louder squeak from the Opposition Benches because pensioners would have had to wait for 18 months. It was the classic Catch 22 — the no-win situation.
If we can maintain that very low rate of inflation—as I believe we can — and if the economy continues to grow, I hope that Ministers will persuade senior colleagues that we should do a little more for our pensioners next April than merely deliver our promise. I am glad that we made that promise and that it has been kept, but we should offer pensioners a little more out of the growth of the economy so that they can enjoy some of the benefits flowing to those in work.
I say that because I am conscious that the cost of living for our pensioners is different from that shown in the conventional cost of living index published in newspapers. I have no figures to prove my assertion, but I guess that the average pensioner does not benefit from a fall in the mortgage rate or from a fall in the cost of petrol. I do not know by what mechanism we can truly establish the cost of living for the bulk of our pensioners, but if it can be established, I hope that my senior colleagues will try to make some move towards delivering a rise next April for our pensioners in line with their cost of living, which is so different from ours.

Mr. Raynsford: In view of what I said earlier about 2·5 million pensioners suffering losses because of the failure to uprate housing benefit needs allowance properly, does the hon. Gentleman accept that an effective improvement could be made for pensioners, including those with savings whose income is above the supplementary benefit level, by pressing the Government for a proper increase in housing benefit this July?

Mr. Brandon-Bravo: When the hon. Gentleman rose and apologised to the House for getting involved in technicalities, I guarantee that, 30 seconds later, he had lost the attention of most hon. Members. That happened not only on the Government side; I saw blank looks of amazement on the faces of most of his hon. Friends.
In Nottingham this winter the local newspaper ran a magnificent campaign for the old and cold. It raised a lot of money, with which it made specific grants to people identified by their neighbours as being in trouble over heating payments. It was with a sense of unease that I accepted that the newspaper had to conduct such a campaign, but I was glad that it did. It was good to see the public responding so well to the appeal.
An interesting sidelight on that campaign for the old and cold is not addressed by all the arguments about additional heating payments. Two or three weeks ago Nottingham university staged an open day. One of the

exhibitions was about cold and its effect upon human beings. I suppose that I was subconsciously aware of what the exhibition demonstrated, but it had never been brought to my attention in such a forceful way.
The exhibition was about the effect upon our elderly of a poor diet. The professor at the university said that poor diet probably had a greater impact on death through hypothermia than the temperature in an elderly person's home. On reflection, most of us will realise older people want a higher temperature in their homes than we find comfortable. Many elderly people have the strange belief that they do not need to eat as much as most of us. They eat less and less as they get older, and that is one of the major causes of the tragic loss of life through hypothermia.
Perhaps the Government can do something about that. I hesitate to make suggestions because it is difficult to persuade an old person that eating properly is as important as keeping the gas fire on all day.
I agree with hon. Members on both sides of the House that the weakest in our society are affected by inflation. It is no good saying, as members of the Labour party and of the alliance say all too often, that a few extra points on the cost of living index do not matter. They really do. We do no service to our community by arguing that it does not matter if inflation is a few points higher so long as benefits go up in line with that inflation. We cannot have it both ways. If we accept that philosophy, we shall be back to the earnings-related benefits argument. I hope that the Government continue to make inflation their top priority. If we can keep inflation down to tiny percentages, even if we cannot achieve zero, we shall do the greatest service to those at the bottom of the income scale and to our pensioners.

Dr. Norman A. Godman: I wish to speak briefly to the second order, on supplementary benefit uprating, but first I should like to respond to what the hon. Member for Nottingham, South (Mr. Brandon-Bravo) said. Surely he was not saying that research at Nottingham university demonstrated that diet is more important for the elderly than a warm house. I should have thought that a sensible diet and a warm house are very important to the elderly. The hon. Gentleman might not have said that, but that is what I understood.
The hon. Gentleman spoke about people in work. I am sure that he does not need to be reminded that the numbers of people in work and out of work are not evenly distributed throughout the nation. A large proportion of my constituents are utterly dependent on supplementary benefit and other payments. Indeed, over the past six years there has been a 94 per cent. increase in the number of supplementary benefit claimants in Greenock and Port Glasgow.
About 21 per cent. of the population in Scotland live on or below the supplementary benefit level. In Strathclyde the figure is 26·8 per cent.; in Glasgow 39·5 per cent. of people with dependants live on social security payments, while in my constituency about 33,000 people live on or below the supplementary benefit level. Therefore, upratings are of great importance. It is both inevitable and predictable that there will be pronounced and profound differences in this House on the means by which we reform the system of social security. As I said


many times in the social security Bill Committee, we have a ramshackle system of social welfare, of which these upratings are a part.
The Minister said that the regulations covering severe weather payments were being reviewed. I hope that it will not he too lengthy a process. I have spent some considerable time arguing the case for these payments. My hon. Friend the Member for Birkenhead (Mr. Field) asked whether those payments could be made to those saddled with additional fuel bills because of the past few weeks of unseasonably cold weather. He was not being facetious. The severe weather payment is based upon the additional costs brought about by the additional fuel consumed in unseasonably cold weather. Indeed, the Minister said that in February such payments were made to 57,000 pensioners and others in Scotland. It is an important issue and my hon. Friend was right to request payments because of our exceptionally cold summer. Despite what the hon. Member for Nottingham, South said, people need warm rooms, and this has been a dreadful summer.
I also agree with much of what my hon. Friend the Member for Birkenhead said about the dangers of inflation. He made sound sense. However, as well as the spectre of inflation and the distress caused by constantly increasing prices to those on low incomes, especially pensioners, we also have the problem of structural unemployment. More and more people are deeply affected by economic decline. The male unemployment rate in my constituency is at the scandalously high level of 26 per cent., and there has been a 94 per cent. increase in the number of supplementary benefit payments during the past six years. To some extent, that has been generated by the disastrously inadequate and antiquated economic policies of this Government.
It is right and proper that we should all put our minds to the reform of the system of social welfare, although there are bound to be differences across the House. We must consider an increase in taxation for some of those in work, especially the better off. We all have an obligation to protect and promote the interests of the needy in our constituencies. As I have already said, 33,000 people in my constituency are on or below supplementary benefit level — yet it is not the area most heavily affected by structural decline on the Clyde or in other parts of Scotland. It is right that we should examine ways to change the system. I believe that the Labour party system is much better than that supported and promoted by the present Administration.

Mrs. Margaret Beckett: This has been an extremely interesting debate. I apologise for not having been present throughout, although I have been here for the larger part. I have certainly been here long enough to realise how many of the main points of concern have been ably expressed by hon. Members on both sides.
My main point, which has been made already but bears repeating, is the extent to which our debate is about an opportunity lost. The hon. Member for Lincoln (Mr. Carlisle) suggested that the Government should take credit for the lower levels of inflation that we now enjoy. Over the past few years they have done nothing else, although they have not wanted to take the blame for some of the problems that have accompanied that.
Because the rate of inflation is comparatively low, it gives the Government a great opportunity to do more than

the rate of inflation and to do so, relatively speaking, inexpensively. It has been an extraordinary feature of this and other uprating debates that Tory Back Benchers, clearly following the arguments put to them, speak as though it would be inconceivable generosity were the Government to do rather more than increase benefits in line with the increase in prices—as though the standard of living of the poorest members of the community was being fully protected by this and other upratings.
It is important to remember that when in 1980 the Government decided to break the link between earnings and benefits and to retain only the link between benefits and prices the then Secretary of State, in specific and unqualified terms, said that the Government's intention was not merely to increase benefits in line with prices year after year but to take the opportunity — this is his argument, not mine — presented by the economic difficulties in which the Government found themselves to break the link with earnings that was at that time a statutory and bounden duty on the Government and to retain only the statutory duty to increase in line with prices.
I was under the impression that the Chancellor of the Exchequer, let alone the Secretary of State for Employment, believes that we are now in a time of prosperity — that there has been great success in the Government's economic and industrial policies and that things are now substantially better than for many years past. On the basis of the argument put forward by the previous Secretary of State in 1980, surely it is now opportune for the Government to do as they indicated in 1980 they had every intention of doing—from time to time to make a one-off increase in benefits in line with earnings, although they did not intend to do that every year.
The reason that the Secretary of State of the day gave that assurance was a reason of importance which stands today. His recognition that to link benefits only with prices meant, as it means now, a steady and inexorable decline in the standard of living of the poorest members of the community. That is clearly evident now regarding pensioners. The figures are known. A single pensioner has lost about £4 a week through the break with earnings, and a married couple have lost about £7 a week.
It is evident how much people have dropped behind in terms of living standards when one looks at the long-term predictions of the Government Actuary regarding pensions. Even before the Government got their grubby hands on the state earnings-related scheme, the: Government Actuary showed that over a period of years the basic pension so declines in value when linked only with prices that even with the addition of an untouched earnings-related scheme the total pension gradually declines until it is below that of a basic pension today. Those are the Government's own figures and predictions.
The value of child support is being eroded. Not even the £175 million cut last year from child benefit has been restored. The value of child support is now less than it was 30 years ago.
I could not say that one would welcome a decision to leave non-dependent deductions in housing benefit where they were but, as my hon. Friend the Member for Fulham (Mr. Raynsford) said, the Government, having introduced that deduction at an exorbitant and unjustified level, disproportionate to the cost of rent and rates, increased it last year by an amount substantially above the rate of


inflation. The fact that the Government did not choose to increase it this year is, I suppose, to be welcomed, but it does not mean that we have forgotten how much they took from such families last year. The deduction affects poor families with young adults who are in work. The decision to scrap the non-household rent addition is a blow to many needy families with young adults out of work. It is a further blow to their independence.
It has been said that, since the Conservative party has been in government, about £1·5 million has been saved at the expense of the young in particular and that substantial savings along those lines are likely in the Social Security Bill. How much do the Government expect to save from the change? We know that, when the Government made similar changes in 1983, they saved £20 million. A further set of changes in 1985–86 saved another £45 million. We shall be interested to learn how much has been saved at the expense, in particular, of young people forced to depend on benefits.
My hon. Friend the Member for Fulham, in an interesting and excellent speech on housing benefit, not only educated many hon. Members — as the hon. Member for Nottingham, South (Mr. Brandon-Bravo) conceded — in the intricacies and byways of housing benefit but put most pertinently to the Government a number of questions on the impact of their changes. It remains for me only to say that I hope that on this occasion the Minister will say whether my hon. Friend the Member for Fulham was correct in asserting that savings of £100 million or £150 million will be made. If he says that my hon. Friend is incorrect, he might tell us the order of magnitude of the sums involved.
The Government have lost an opportunity to restore some of the determination in living standards over recent years for the poorest members of the community. They have seized an opportunity to make more savings along the way, hoping that, because they are made by way of obscure technical adjustments, no one will notice—that is, no one other than the 4 million households which will be affected by the changes in housing benefits. They have seized an opportunity to make the minimum possible increase in benefits.
Much has been said in the House about the amount of the social security budget, implying that the Government are being generous. It should be clearly on record that every year since the Government broke the link with earnings they have given the minimum possible — the minimum that they are forced to do by law — to the poorest members of our community, whereas in every Budget they have brought in they have been generous to those whose needs are least.
My hon. Friend the Member for Fulham said that the Government could have taken account of changes still to come and not made the full savings that they can make because of the time of the uprating, if they had consulted their colleagues in the Department of the Environment. If not this year, in which year will the Government make up the losses? The hon. Member for Nottingham, South said that he hoped the year would come when the Government felt able to give back to the poor some of the living standards that they have lost over recent years. We all hope that that year will come, but since it has been six years since the change was made, we wonder when that will be. Perhaps the hon. Member for Nottingham, South

should pin his hopes, as should the pensioners and the unemployed, on a pre-election giveaway. Judging from the Government's track record so far, I am not sure that even those hopes should be strong.
The Government say that the poor are being protected in the uprating just as they say that the National Health Service is prospering, the economy is booming and everything is for the best in the best of all possible worlds. Even Conservative Members clearly realise that that is not the reality of how the Health Service or much else is perceived. There have been some signs in today's debate that they are beginning to realise that the same is true about the rest of the welfare state. We welcome their conversion. We hope that the pressure that they bring to bear will mean that next year's uprating will, for once, implement the pledges given by a former Secretary of State six years ago.

The Parliamentary Under-Secretary of State for Health and Social Security (Mr. John Major): This has been an intriguing debate, spiced with assertion that has, as is traditional on these occasions, ranged far further than the question of uprating. I have no objection to that. As usual, there has been a mixture of informed and constructive comment, and other comment which it would be kindest to characterise as unhelpful. What has been consistent about the contributions from the Opposition Benches is that there have been times when one might been forgiven for believing that the debate was about reductions in benefits rather than orders which increase the main benefit rates and add some £420 million in a full year to social security spending. As I noted what was said, I wondered whether we were debating the draft regulations that I have considered carefully over recent days.
It is worth re-emphasising at the outset that the uprating fulfils our undertaking to increase pensions and other linked long-term benefits in line with the movement of prices. It is an oddity that the pursuit of low inflation, which has been the prime aim of Governments for 20 years, should, once achieved, give rise to criticism over benefit increases.
If the Opposition were presiding over, say, a 16 per cent. inflation rate—I pick the average rate during their last term of office, fearing that their spending plans would re-create that wicked cycle of rising prices and falling prospects—they would no doubt regard it as a matter of pride to protect benefit values by increasing rates by a similar amount. But when we protect benefit values, and savings too—as one of my hon. Friend's trenchantly pointed out — by bringing down inflation, that is a matter for criticism regarding benefit increases.
In reality we must get used again to living in a world of low price rises, when neither benefits nor, I hope, earnings need to go up by enormous amounts simply to keep up with the cost of living. Clearly, it will take some psychological adjustment. I am sorry to see that many Opposition Members are clearly maladjusted in that respect. The only logical conclusion one can draw from much of what they said was that they would like inflation to be higher so that pensioners and others can be given a larger increase.
Although the circumstances of the uprating are exceptional, and the small increase in benefits is due partly to the interim nature of the uprating, it is clear that the downward path of inflation, which thankfully looks as if


it will continue, means that it is possible for future uprating debates to be held against a background of low inflation. I am grateful to my hon. Friends the Members for Stirling (Mr. Forsyth) and Lincoln (Mr. Carlisle) and the hon. Members for Birkenhead (Mr. Field), and Roxburgh and Berwickshire (Mr. Kirkwood) for acknowledging clearly and without equivocation the full value of low inflation for those on modest incomes.
The hon. Member for Oldham, West (Mr. Meacher) made a rather expensive speech. No doubt it was enjoyed by Labour Back Benchers but it will conceivably mean misery for that unlikely creature of the future, a Labour Chancellor. I was concerned, not just with what the hon. Gentleman said, but, substantially, with what he left out. He talked of what the Christmas bonus would have been worth if it had been index-linked, but he certainly did not mention what it was worth in the years when a Labour Government found it impossible to pay it. He talked of the level of pensions and what it would have been if pensions had been index-linked to earnings, but, despite being challenged, he did not say what the cost would be in national insurance contributions, lost employment and increased inflation.
The hon. Member for Oldham, West did say — I acknowledge this—that he would claw back £3·6 billion in tax from what he loosely called "the rich" to pay for his new spending programme. I must tell him that £3·6 billion may seem a large sum to him, but his promises would cost a minimum of £4·6 billion in the very first year, of which £1·5 billion would be for child benefit. The Opposition will need to look far wider than the hon. Gentleman suggested if they are to fund their promises.

Mr. Meacher: It is a fantasy.

Mr. Major: To be accused by the hon. Gentleman of citing fantasy figures is surely one of the delights of life.
My hon. Friend the Member for Stirling successfully exploded the myth that these benefit increases could be paid for by taxes on the rich. I commend his speech to the hon. Member for Oldham, West, who was unavoidably absent at that time.
The hon. Member for Oldham, West compared the Government's record with that of their immediate predecessor. Again, there was much that he neglected to say. For example, he did not say, although it is highly relevant to pensioners, that the real value of savings for a pensioner with a building society account fell by 33 per cent. during the period of the last Labour Government, largely because of precisely the same policies that the Labour party now proposes and precisely the same policies that it would use to pay for the better provision about which the hon. Member for Oldham, West talked. Some help that would be to the pensioners. I shall with relish refer the hon. Gentleman's remarks to the tender researches of my right hon. Friend the Chief Secretary, who will doubtless check carefully to ascertain whether the hon. Gentleman's promises are within the £24 billion cost of Labour's programme to date or are a substantive addition to that sum.
The hon. Member for Derby, South (Mrs. Beckett) suggested that, as inflation was now so low — I am grateful for that acknowledgment—we might have done better and that it was trivial of us not to increase benefits by a larger sum. I must say to her, because arithmetic is not a strong point on the Opposition Front Bench—

Mr. Marlow: It is non-existent.

Mr. Major: It is non-existent. My hon. Friend is characteristically less generous than me. Each increase of 1 per cent. in benefits costs some £360 million, which is in no sense a trivial sum.
My hon. Friend the Member for Kensington (Sir B. Rhys Williams) made a typically thoughtful and constructive speech on a theme that he has pursued valiantly for many years. He will not expect me to respond to his philosophical observations, and I shall not disappoint him. But I shall confirm that we are making giant strides towards—

Mrs. Beckett: Tenpence.

Mr. Major: The hon. Lady should wait to hear what I say before she disputes it. I was going to say—I shall repeat it from the beginning so that she may have its full rich flavour—that we are making giant strides towards the efficient computerised system in the Department of Health and Social Security that my hon. Friend the Member for Kensington seeks so that we can deliver an accurate and swift social security service to the public. That is what we seek and what our operational strategy seeks to deliver. I hope that my hon. Friend the Member for Kensington, who, I understand, has some objections to the social security reforms, will appreciate the structural changes in the Social Security Bill which will make a significant contribution to the increased efficiency that he seeks.

Mr. Favell: Will my hon. Friend give way?

Mr. Major: I hope that my hon. Friend will forgive me, but I must respond to a large number of points and I want to deal with as many as I can.
The hon. Member for Roxburgh and Berwickshire invited the Government to re-examine the retail price index. [Interruption.] No doubt he is now examining the Liberal party's defence policy! The hon. Gentleman invited the Government to examine the retail price index in the light of the results of recent reports by the Institute for Fiscal Studies. My hon. Friend the Member for Lincoln raised the same question and added that the RPI needed continuing investigation. It gets that. The construction of the RPI is the responsibility of a committee of statistical experts. At present, the retail price advisory committee is sitting. It will consider the RPI and the special pensioners' price index. I assure the hon. Member for Roxburgh and Berwickshire that the committee will take full account of the type of criticisms made by the Institute for Fiscal Studies and, as normally happens, any recommendations for re-weighting will be taken into account in the RPI from January next.
The hon. Member for Roxburgh and Berwickshire may not be aware that the RPI has done much better for pensioners than the index of changes in their spending arrived at through the special pensioners' index—the so-called pensioners' price index. The RPI has risen by some six percentage points more than the pensioners' index and the level of retirement pension by 16 percentage points more in the period from November 1978 to November 1985. Whatever criticism there may be of the RPI, it has delivered a fairer level of benefit to many people than might have been the case with other, apparently more selective, examinations of their spending patterns.
The hon. Member for Roxburgh and Berwickshire raised a number of other matters concerning future


upratings, but I shall not surprise him by responding to them, because he would not realistically have expected me to do so.
The hon. Member for Fulham (Mr. Raynsford), with his special expertise in housing benefit, suggested — "accused" would perhaps be too harsh a word—that the Government had made covert savings in housing benefit as a result of changes in structure. I shall examine the hon. Gentleman's speech carefully, because I appreciate his depth of knowledge, but I do not for one second accept the assertion that that was a covert cut or the charges that he sought to make.

Mr. Raynsford: Will the hon. Gentleman give way?

Mr. Major: I hope that the hon. Gentleman will forgive me and hear what I have to say. In any event, he will notice that time is pressing. I shall carefully examine his comments. However, I do not believe that he was accurate.
If the Opposition vote for the prayer, they will vote against the expressed wishes of local authority associations, which were consulted and which advised us to make the change. They will vote for a reduction in help for many standard housing benefit recipients. I shall await their decision on that point with some interest. That is precisely what will happen, whether the hon. Member for Oldham, West likes it or not.
The hon. Member for Oldham, West made a great deal of the standard of living of 9·5 million pensioners and many millions of other beneficiaries. My hon. Friend the Minister for Social Security said that our record was substantial and beneficial. I confirm that. It is a record of which we are proud. It is demonstrably the case that retirement pensions have kept appreciably ahead of inflation since 1979, and it cannot be denied. It is demonstrably the case that total benefit spending on elderly people has increased in real terms by 26 per cent. in the past five years, and it cannot be denied.
That is not all. Taking together cash benefits and other programmes supporting elderly people, our spending in relation to gross domestic product is the third highest in the European Community. The hon. Member for Oldham, West chose not to mention that. Perhaps he did not know it, or perhaps he simply did not like the fact that it reflected the Government's commitment to the elderly. It is vital to consider pension levels not in isolation but in the context of all the services provided. It is those which, taken together, set the standard of living. It is those facts which the Opposition perennially ignore. The problem with the hon. Member for Oldham, West is that his spending plans are index-linked to his own verbocity. Every speech he makes has a substantial price tag.
We have carefully weighed the resources available to us and been able to achieve many key objectives without damaging the economic aims that make all social security payments possible. Without economic success there are no resources for those social security payments and that might be borne in mind. Economic success benefits nobody more than social security beneficiaries. It is reflected substantially by the uprating orders before the House and I invite my right hon. and hon. Friends to reflect upon that success and give the orders their support, and defeat the prayer should it be moved to a Division.

It being Seven o'clock, MR. SPEAKER proceeded, pursuant to the Order [9 June], to put forthwith the Questions necessary to dispose of the motions.

Resolved,
That the draft Social Security Benefits Up-rating Order 1986, which was laid before the House on 8th May, be approved.

SOCIAL SECURITY

Resolved,
That the draft Supplementary Benefit Uprating Regulations 1986, which were laid before this House on 5th June, be approved.—[Mr. Newton.]

Resolved,
That the draft Family Income Supplements (Computation) Regulations 1986, which were laid before this House on 8th May, be approved.—[Mr. Newton.]

Resolved,
That the draft Child Benefit (Up-rating) Ragulations 1986, which were laid before this House on 8th May, be approved. —[Mr. Newton.]

Resolved,
That the draft Pensioners' Lump Sum Payments Order 1986, which was laid before this House on 8th May, be approved.—[Mr. Newton.]

HOUSING BENEFITS

Motion made and Question put,
That an humble Address be presented to Her Majesty, praying that the Housing Benefits Amendment (No. 2) Regulations 1986 (S.I., 1986, No. 852), dated 14th May 1986, a copy of which was laid before this House on 16th May, be annulled.—[Mr. Meacher.]

The House divided: Ayes 168, Noes 249

Division No. 219]
[7 pm


AYES


Adams, Allen (Paisley N)
Cook, Frank (Stockton North)


Alton, David
Cook, Robin F. (Livingston)


Anderson, Donald
Corbett, Robin


Archer, Rt Hon Peter
Corbyn, Jeremy


Ashdown, Paddy
Cox, Thomas (Tooting)


Ashton, Joe
Craigen, J. M.


Atkinson, N. (Tottenham)
Crowther, Stan


Banks, Tony (Newham NW)
Dalyell, Tam


Barnett, Guy
Davies, Rt Hon Denzil (L'lli)


Barron, Kevin
Davies, Ronald (Caerphilly)


Beckett, Mrs Margaret
Davis, Terry (B'ham, H'ge H'l)


Beith, A. J.
Deakins, Eric


Bell, Stuart
Dewar, Donald


Benn, Rt Hon Tony
Dixon, Donald


Bennett, A. (Dent'n &amp; Red'sh)
Dobson, Frank


Bermingham, Gerald
Dormand, Jack


Bidwell, Sydney
Douglas, Dick


Blair, Anthony
Dunwoody, Hon Mrs G.


Boyes, Roland
Eastham, Ken


Brown, N. (N'c'tle-u-Tyne E)
Edwards, Bob (W'h'mpt'n SE)


Brown, R. (N'c'tle-u-Tyne N)
Faulds, Andrew


Brown, Ron (E'burgh, Leith)
Field, Frank (Birkenhead)


Bruce, Malcolm
Fields, T. (L'pool Broad Gn)


Buchan, Norman
Fisher, Mark


Caborn, Richard
Flannery, Martin


Callaghan, Rt Hon J.
Foot, Rt Hon Michael


Callaghan, Jim (Heyw'd &amp; M)
Forrester, John


Campbell-Savours, Dale
Foster, Derek


Canavan, Dennis
Foulkes, George


Carter-Jones, Lewis
Freeson, Rt Hon Reginald


Cartwright, John
Freud, Clement


Clark, Dr David (S Shields)
Garrett, W. E.


Clarke, Thomas
George, Bruce


Clay, Robert
Godman, Dr Norman


Clelland, David Gordon
Gould, Bryan


Clwyd, Mrs Ann
Hamilton, James (M'well N)


Cocks, Rt Hon M. (Bristol S)
Hamilton, W. W. (Fife Central)


Cohen, Harry
Hancock, Michael


Coleman, Donald
Hardy, Peter






Harrison, Rt Hon Walter
Pike, Peter


Hattersley, Rt Hon Roy
Powell, Raymond (Ogmore)


Heffer, Eric S.
Prescott, John


Hogg, N. (C'nauld &amp; Kilsyth)
Radice, Giles


Holland, Stuart (Vauxhall)
Randall, Stuart


Home Robertson, John
Raynsford, Nick


Howells, Geraint
Redmond, Martin


Hoyle, Douglas
Richardson, Ms Jo


Hughes, Simon (Southwark)
Roberts, Ernest (Hackney N)


Janner, Hon Greville
Robertson, George


John, Brynmor
Robinson, G. (Coventry NW)


Jones, Barry (Alyn &amp; Deeside)
Rogers, Allan


Kaufman, Rt Hon Gerald
Rooker, J. W.


Kennedy, Charles
Ross, Ernest (Dundee W)


Kirkwood, Archy
Ross, Stephen (Isle of Wight)


Lambie, David
Rowlands, Ted


Lamond, James
Sedgemore, Brian


Leadbitter, Ted
Shields, Mrs Elizabeth


Lewis, Ron (Carlisle)
Shore, Rt Hon Peter


Lewis, Terence (Worsley)
Short, Ms Clare (Ladywood)


McCartney, Hugh
Short, Mrs H.(W'hampt'n NE)


McDonald, Dr Oonagh
Silkin, Rt Hon J.


McGuire, Michael
Skinner, Dennis


McKelvey, William
Smith, Rt Hon J. (M'ds E)


Maclennan, Robert
Snape, Peter


McTaggart, Robert
Soley, Clive


McWilliam, John
Spearing, Nigel


Madden, Max
Stewart, Rt Hon D. (W Isles)


Martin, Michael
Straw, Jack


Mason, Rt Hon Roy
Thompson, J. (Wansbeck)


Maxton, John
Thorne, Stan (Preston)


Maynard, Miss Joan
Torney, Tom


Meacher, Michael
Wainwright, R.


Mikardo, Ian
Wallace, James


Millan, Rt Hon Bruce
Wardell, Gareth (Gower)


Miller, Dr M. S. (E Kilbride)
Wareing, Robert


Mitchell, Austin (G't Grimsby)
Welsh, Michael


Morris, Rt Hon A. (W'shawe)
Wigley, Dafydd


Morris, Rt Hon J. (Aberavon)
Williams, Rt Hon A.


Nellist, David
Wilson, Gordon


Oakes, Rt Hon Gordon
Winnick, David


Orme, Rt Hon Stanley
Woodall, Alec


Parry, Robert
Wrigglesworth, Ian


Patchett, Terry



Pavitt, Laurie
Tellers for the Ayes:


Pendry, Tom
Mr. Frank Haynes and Mr. Allen McKay.


Penhaligon, David





NOES


Alexander, Richard
Bright, Graham


Alison, Rt Hon Michael
Brinton, Tim


Amess, David
Brittan, Rt Hon Leon


Ancram, Michael
Brown, M. (Brigg &amp; Cl'thpes)


Arnold, Tom
Browne, John


Ashby, David
Bruinvels, Peter


Aspinwall, Jack
Bryan, Sir Paul


Atkins, Robert (South Ribble)
Budgen, Nick


Atkinson, David (B'm'th E)
Bulmer, Esmond


Baker, Nicholas (Dorset N)
Burt, Alistair


Baldry, Tony
Butcher, John


Banks, Robert (Harrogate)
Butler, Rt Hon Sir Adam


Batiste, Spencer
Butterfill, John


Beaumont-Dark, Anthony
Carlisle, John (Luton N)


Bellingham, Henry
Carlisle, Kenneth (Lincoln)


Bendall, Vivian
Carlisle, Rt Hon M. (W'ton S)


Benyon, William
Carttiss, Michael


Best, Keith
Cash, William


Bevan, David Gilroy
Chalker, Mrs Lynda


Biffen, Rt Hon John
Chapman, Sydney


Biggs-Davison, Sir John
Chope, Christopher


Blackburn, John
Churchill, W. S.


Blaker, Rt Hon Sir Peter
Clark, Dr Michael (Rochford)


Body, Sir Richard
Clark, Sir W. (Croydon S)


Bonsor, Sir Nicholas
Clarke, Rt Hon K. (Rushcliffe)


Boscawen, Hon Robert
Clegg, Sir Walter


Bottomley, Peter
Colvin, Michael


Bottomley, Mrs Virginia
Conway, Derek


Bowden, A. (Brighton K'to'n)
Cope, John


Braine, Rt Hon Sir Bernard
Cormack, Patrick


Brandon-Bravo, Martin
Corrie, John





Couchman, James
Malone, Gerald


Cranborne, Viscount
Maples, John


Crouch, David
Marland, Paul


Dickens, Geoffrey
Marlow, Antony


Dicks, Terry
Marshall, Michael (Arundel)


Dorrell, Stephen
Mates, Michael


Douglas-Hamilton, Lord J.
Mather, Carol


Dover, Den
Mayhew, Sir Patrick


Durant, Tony
Merchant, Pirs


Evennett, David
Meyer, Sir Anthony


Eyre, Sir Reginald
Mills, Iain (Meriden)


Fairbairn, Nicholas
Mills, Sir Peter (West Devon)


Fallon, Michael
Miscampbell, Norman


Farr, Sir John
Mitchell, David (Hants NW)


Favell, Anthony
Moate, Roger


Finsberg, Sir Geoffrey
Montgomery, Sir Fergus


Fletcher, Alexander
Morris, M. (N'hampton S)


Fookes, Miss Janet
Moynihan, Hon C.


Forman, Nigel
Mudd, David


Forsyth, Michael (Stirling)
Murphy, Christopher


Forth, Eric
Needham, Richard


Fowler, Rt Hon Norman
Nelson, Anthony


Fox, Marcus
Newton, Tony


Garel-Jones, Tristan
Nicholls, Patrick


Glyn, Dr Alan
Norris, Steven


Goodhart, Sir Philip
Onslow, Cranley


Gow, Ian
Oppenheim, Phillip


Gower, Sir Raymond
Oppenheim, Rt Hon Mrs S.


Greenway, Harry
Osborn, Sir John


Griffiths, Sir Eldon
Ottaway. Richard


Ground, Patrick
Page, Sir John (Harrow W)


Grylls, Michael
Parkinson, Rt Hon Cecil


Hamilton, Hon A. (Epsom)
Patten, J. (Oxf W &amp; Abgdn)


Hamilton, Neil (Tatton)
Pawsey, James


Hampson, Dr Keith
Peacock, Mrs Elizabeth


Harris, David
Percival, Rt Hon Sir Ian


Hawksley, Warren
Pollock, Alexander


Hayhoe, Rt Hon Barney
Powell, William (Corby)


Hayward, Robert
Powley, John


Heddle, John
Prentice, Rt Hon Reg


Henderson, Barry
Price, Sir David


Higgins, Rt Hon Terence L.
Proctor, K. Harvey


Hind, Kenneth
Raffan, Keith


Hirst, Michael
Rathbone, Tim


Holland, Sir Philip (Gedling)
Renton, Tim


Hordern, Sir Peter
Rhys Williams, Sir Brandon


Howard, Michael
Ridsdale, Sir Julian


Howarth, Gerald (Cannock)
Rifkind, Rt Hon Malcolm


Hunter, Andrew
Roberts, Wyn (Conwy)


Irving, Charles
Roe, Mrs Marion


Jackson, Robert
Rossi, Sir Hugh


Jessel, Toby
Rowe, Andrew


Jones, Gwilym (Carditf N)
Ryder, Richard


Jones, Robert (Herts W)
Sackville, Hon Thomas


Kershaw, Sir Anthony
Shaw, Sir Michael (Scarb')


Knight, Greg (Derby N)
Shelton, William (Streatham)


Knight, Dame Jill (Edgbaston)
Shepherd, Colin (Hereford)


Knowles, Michael
Shersby, Michael


Lamont, Norman
Silvester, Fred


Latham, Michael
Sims, Roger


Lawrence, Ivan
Smith, Sir Dudley (Warwick)


Leigh, Edward (Gainsbor'gh)
Smith, Tim (Beaconsfield)


Lennox-Boyd, Hon Mark
Soames, Hon Nicholas


Lewis, Sir Kenneth (Stamf'd)
Spencer, Derek


Lightbown, David
Spicer, Jim (Dorset W)


Lilley, Peter
Spicer, Michael (S Worcs)


Lloyd, Peter (Fareham)
Squire, Robin


Lord, Michael
Stanbrook, Ivor


McCrindle, Robert
Stanley, Rt Hon John


McCurley, Mrs Anna
Steen, Anthony


Macfarlane, Neil
Stern, Michael


MacGregor, Rt Hon John
Stevens, Lewis (Nuneaton)


MacKay, Andrew (Berkshire)
Stewart, Allan (Eastwood)


MacKay, John (Argyll &amp; Bute)
Stewart, Andrew (Sherwood)


Maclean, David John
Stewart, Ian (Hertf'dshire N)


McLoughlin, Patrick
Stradling Thomas, Sir John


McNair-Wilson, M. (N'bury)
Taylor, John (Solihull)


Madel, David
Tebbit, Rt Hon Norman


Major, John
Temple-Morris, Peter


Malins, Humfrey
Terlezki, Stefan






Thomas, Rt Hon Peter
Watts, John


Thompson, Donald (Calder V)
Wells, Bowen (Hertford)


Thompson, Patrick (N'ich N)
Wells, Sir John (Maidstone)


Thorne, Neil (Ilford S)
Whitfield, John


Thornton, Malcolm
Wilkinson, John


Thurnham, Peter
Winterton, Mrs Ann


Townend, John (Bridlington)
Wolfson, Mark


Townsend, Cyril D. (B'heath)
Wood, Timothy


van Straubenzee, Sir W.
Woodcock, Michael


Viggers, Peter
Yeo, Tim


Walker, Bill (T'side N)
Young, Sir George (Acton)


Waller, Gary



Walters, Dennis
Tellers for the Noes:


Ward, John
Mr. Tim Sainsbury and Mr, Francis Maude.


Wardle, C. (Bexhill)



Warren, Kenneth

Question accordingly negatived.

Procedure

The Financial Secretary to the Treasury (Mr. Norman Lamont): I beg to move,
That, notwithstanding anything to the contrary in the practice of the House relating to matters which may be included in Finance Bills, any Finance Bill of the present Session may contain provisions taking effect in a future year with respect to activities of entertainers not resident in the United Kingdom and sportsmen not resident in the United Kingdom.
It might be for the convenience of the House, Mr. Deputy Speaker, if with this we take motions Nos. 8 to 16:
That, notwithstanding anything to the contrary in the practice of the House relating to matters which may be included in Finance Bills. any Finance Bill of the present Session may contain provision with respect to the limit imposed by section 4 of the National Loans Act 1968 in relation to loans made by the Public Works Loan Commissioners in pursuance of section 3 of that Act.
That, for the purposes of any Act resulting from the Finance Bill, it is expedient to authorise any increase in the sums payable out of or into the National Loans Fund which is attributable to any provision of that Act increasing to £42,000 million, with power to increase by order to £50,000 million, the limit imposed by section 4 of the National Loans Act 1968 in relation to loans made by the Public Works Loan Commissioners in pursuance of section 3 of that Act.

DOUBLE TAXATION RELIEF: ADVANCE CORPORATION TAX

That provision may be made amending section 100 of the Finance Act 1972.

PAYMENTS ON RETIREMENT OR REMOVAL FROM OFFICE OR EMPLOYMENT ETC.

That provision may be made amending Schedule 8 to the Income and Corporation Taxes Act 1970

STAMP DUTY (LOAN CAPITAL)

That provision may be made with respect to stamp duty in relation to loan capital.

STAMP DUTY (DEPOSITARY RECEIPTS)

That provision may be made with respect to stamp duty in relation to instruments transferring securities to persons concerned with depositary receipts.

STAMP DUTY (CLEARANCE SERVICES)

That provision may be made with respect to stamp duty in relation to instruments transferring securities to persons concerned with clearance services.

STAMP DUTY RESERVE TAX (DEPOSITARY RECEIPTS)

That provision may be made for charging stamp duty reserve tax where securities are transferred, issued or appropriated after 18th March 1986 in pursuance of an arrangement (whenever made) relating to a depositary receipt.

STAMP DUTY RESERVE TAX (CLEARANCE SERVICES)

That provision may be made for charging stamp duty reserve tax where securities arc transferred or issued after 18th March 1986 in pursuance of an arrangement (whenever made) relating to the provision of clearance services.

Mr. Terry Davis: I think that it would be a good idea if the Financial Secretary to the Treasury were to explain to the House why the Procedure and the Ways and Means motions are necessary. Indeed. I think that the Minister has an obligation to do so, having presented the House with a record number of extra motions.
We realise that all Governments, Labour and Conservative, have found it necessary to introduce extra Ways and Means motions during the proceedings in Committee on the Finance Bill so that the Committee can deal with matters that it would not otherwise be able to consider. I accept that there is often a need for some extra motions to be put before the House. We have, however,


been presented with an exceptional number of extra motions. I have looked back over the past 12 years, and I think that on this occasion the Government have tabled a record number. It is a record that can be added to the Government's other records on unemployment, real interest rates and the imbalance in our trade in manufactured goods. We now have a record number of motions so that the Government can get out of the jam that threatens them in Committee on the Finance Bill.
As I have already said, I accept that there is often a need for some motions of this sort to be tabled, but we are being confronted with an exceptional number in this instance. There are no fewer than 10 Procedure and Ways and Means motions on the Order Paper.
We are bound to draw the conclusion that the Government are an Administration of indecision and dither, if not incompetence. Some of the matters that we are being asked to refer to the Standing Committee were included in the Budget statement of the Chancellor of the Exchequer. I should have thought that it would have been possible to include such matters in the Finance Bill. If that was not possible, they could at least have been included in Ways and Means motions at an earlier stage. I think that the Financial Secretary owes us some explanation of why it was not possible to include the matters now before us in the original motions, and why it is necessary to come to the House with these motions at such a late stage in the proceedings of the Committee that is considering the Finance Bill.

Mr. Lamont: The Procedure motions are permissive instructions to the Finance Bill Committee. They will enable it to include items in the Bill which it would not otherwise have been able to do. The Procedure motions cover two matters, one relating to a future year and provision for the taxation of entertainers, and the other covering borrowing through the Public Works Loan Commissioners. The money resolution is necessary because it is a charge to the Exchequer. Again, it relates to the Public Works Loan Commissioners.
One of the Ways and Means motions refers to double taxation relief and another is directed to golden handshakes. The majority of the Ways and Means motions that are causing concern to the hon. Member for Birmingham, Hodge Hill (Mr. Davis) relate to stamp duty. It has been necessary to make a number of changes in the Government's intentions on stamp duty, which is an extremely complicated tax and extremely difficult to amend. Therefore, it has been necessary in many instances to table new clauses. A new clause on stamp duty was tabled on 3 June and a Ways and Means motion was tabled on 5 June. My hon. Friend the Economic Secretary to the Treasury wrote to the hon. Member for Thurrock (Dr. McDonald) in anticipation of these changes and explained what the Government intended. I hope that that was some advance warning and explanation.
As the hon. Gentleman knows, the new clauses that have been tabled today will not be discussed in Committee until next Tuesday. I hope he will consider that that gives him some time to consider my explanations as well as the explanations that have been given by my hon. Friend the Economic Secretary. The hon. Gentleman is correct in saying that there have been a substantial number of Government new clauses this year. There have been 17. I am not sure—

Mr. Terry Davis: The hon. Gentleman has missed the point. I am not complaining about the number of new clauses that have been tabled. I have not mentioned the new clauses. I am complaining about the Procedure and Ways and Means motions, of which there are no fewer than 10. I believe that there are more than we have ever had in the House before. I accept the need for new clauses, but why are we having to deal with so many matters which apparently were not envisaged when the Bill was published?

Mr. Lamont: As the hon. Gentleman knows, the Ways and Means motions relate to new clauses, and specifically to changes in stamp duty. I do not think that they represent an unprecedented number of new clauses. As stamp duty is a tax that is so difficult to amend, some of the new clauses might be considered more in the nature of amendments. I do not want to weary the House, but there are precedents for taking new clauses and amendments together. The number of changes that the Government have made is not unprecedented. The changes are necessary for the reasons outlined by my hon. Friend the Economic Secretary to the Treasury in his letter to the hon. Member for Thurrock.

Mr. Gerald Bermingham: As a member of the Finance Bill Committee and one who the Minister would agree has created some trouble over the question of stamp duty, it appears to me that these motions show that the Government, in their proposals of 19 March, had not thought through the problems about stamp duty. Indeed, a Minister admitted in the Committee that the one thing that he had done wrong as a member of the Committee was that as new Ministers had come to the Committee he had not shifted the responsibility for stamp duty to someone else. I suggested to him that perhaps he should simply resign.
We have had stamp duty since before the 1850s, and it is a well-known form of taxation. However, it requires careful and considered thought if amendments are to be made to it. It is not good enough that my hon. Friend the Member for Thurrock (Dr. McDonald) should receive a letter on 3 June saying that further amendments and new clauses are to be tabled for debate next Tuesday. When will the Government think through their philosophy on this matter?
The truth is that every time the Government make a suggestion a pressure group somewhere puts a little more pressure on them and they change their mind. The result is that there are now 17 new clauses. I do not know how many more there will be before we reach the Report stage, but I suspect that newer and newer clauses will be tabled in the same way as we have newer and newer Ministers on the Committee who do not understand what the old Ministers were doing. I suppose that that is the price that we have to pay on that Committee.
I should like to take this opportunity, on behalf of those who have to pay stamp duty, to put a plug back into the matter now as I did in Committee. I hope that the Government will reconsider stamp duty, especially in relation to good will and the reconstruction and amalgamation of companies, as was proposed in the Bankruptcy (Scotland) Act 1985. I hope that we shall have some sanity in the matter.
Treasury Ministers collectively ought to buy a book about stamp duty, sit down, read it and learn what the law


is about. They should ask their hon. Friends who sit around them, and who have knowledge of these matters, for some decent professional advice and return to the Committee with a little sanity, instead of the awful gobbledegook from which the Committee is suffering.

Mr. Terry Davis: I should like to refer briefly to the comments made by the Financial Secretary. I shall not make a great fuss about the need for new clauses about stamp duty. I can understand the need for that. I appreciate that I have been told about the effect that some unfortunate illnesses have had in that respect. I am not making a fuss about that or about the lack of consultation. I appreciate the difficulties, which I believe are due to personnel problems in the Government.
That does not excuse all the motions. The Financial Secretary glided over the first two motions.
I draw the Minister's attention to motion No. 7, which deals with the future taxation of entertainers and sportsmen who are not resident in the United Kingdom. This provision was included in the Chancellor's Budget statement. Why, therefore, was a clause not included in the Bill? Why was there not a Ways and Means motion to cover that point when the other Ways and Means motions were tabled and considered by the House and agreed formally at the time?
I also draw the Financial Secretary's attention to motion No. 8. This is a Procedure motion to allow us to discuss in Committee a new clause affecting the amount of money that can be borrowed from the Public Works Loan Commissioners. I understand the need for such a clause. However, this must have been known before the Chancellor's Budget statement and before the Bill was published. It must have been known that it was necessary to increase the limit on the amount of money that can be lent by the Public Works Loan Commissioners. This must have been known before the Bill was published and before the new clause was tabled a short time ago.
I am not criticising the period for consultation. We will deal with that point in Committee if necessary. It shows a certain incompetence and lack of grip on legislation that these matters were not covered in the Bill in the first place.

Mr. Norman Lamont: I am pleased that the hon. Member for Birmingham, Hodge Hill (Mr. Davis) agrees that there has been ample time for consultation.

Mr. Terry Davis: I did not say that. I said that I was not complaining about that. We will deal with these matters in Committee. The Financial Secretary should not put words into my mouth. I said I was complaining about the fact that these matters were not covered in the Bill as originally drafted. I did not want to take up the time of the House on that issue.
I must tell the Financial Secretary that I am not surprised that the Leader of the House is present, because the threat to the Government's legislative programme by this kind of behaviour is very serious. If the Opposition so wished, we could mount the kind of exercise that was mounted by Conservative Back Benchers last Thursday.

Mr. Lamont: I am grateful for the hon. Gentleman's statement that he is not complaining about the period of consultation.
The motion relating to entertainers is necessary because it relates to a future year. A conscious decision was also made that a motion was needed to cover the Public Works Loan Board. We decided that the Finance Bill was a convenient vehicle to advance the motion.
The hon. Member for Hodge Hill referred to innumerable changes, but he and his hon. Friends will know that this happens every year with the Finance Bill. In fact, in 1976, when the Labour party was in office, there were no fewer than 161 Government amendments to the Finance Bill—many more than there are now. As I have said, some of the proposals must be put forward in the form of new clauses because stamp duty is not a tax that can easily be amended. I think that at least one of the Ways and Means motions on stamp duty — that relating to loans—is more like an amendment. Today's procedure is no different from what has happened in the past when Governments have made amendments.

Mr. Terry Davis: The Financial Secretary has missed the point. He is obviously incapable of replying to my arguments. We will discuss this matter again in Committee and I do not want to delay the House by attempting to teach the Financial Secretary so that he can understand what I am saying.

Question put and agreed to.

Resolved,
That, notwithstanding anything to the contrary in the practice of the House relating to matters which may be included in Finance Bills, any Finance Bill of the present Session may contain provisions taking effect in a future year with respect to activities of entertainers not resident in the United Kingdom and sportsmen not resident in the United Kingdom.

PROCEDURE (LOANS BY PUBLIC WORKS LOAN COMMISSIONERS

Resolved,
That, notwithstanding anything to the contrary in the practice of the House relating to matters which may be included in Finance Bills, any Finance Bill of the present Session may contain provision with respect to the limit imposed by section 4 of the National Loans Act 1968 in relation to loans made by the Public Works Loan Commissioners in pursuance of section 3 of that Act. —[Mr. Norman Lamont.]

FINANCE BILL [MONEY]

Queen's Recommendation having been signified—

Resolved,
That, for the purposes of any Act resulting from the Finance Bill, it is expedient to authorise any increase in the sums payable out of or into the National Loans Fund which is attributable to any provision of that Act increasing to £42,000 million, with power to increase by order to £50,000 million, the limit imposed by section 4 of the National Loans Act 1968 in relation to loans made by the Public Works Loan Commissioners in pursuance of section 3 of that Act. —[Mr. Norman Lamont.]

WAYS AND MEANS

DOUBLE TAXATION RELIEF: ADVANCE CORPORATION TAX

Resolved,
That provision may be made amending section 100 of the Finance Act 1972.—[Mr. Norman Lamont.]

PAYMENTS ON RETIREMENT OR REMOVAL FROM OFFICE OR EMPLOYMENT ETC.

Resolved,
That provision may be made amending Schedule 8 to the Income and Corporation Taxes Act 1970.—(Mr. Norman Lamont.]

STAMP DUTY (LOAN CAPITAL)

Resolved,
That provision may be made with respect to stamp duty in relation to loan capital.—[Mr. Norman Lamont.]

STAMP DUTY (DEPOSITARY RECEIPTS)

Resolved,
That provision may be made with respect to stamp duty in relation to instruments transferring securities to persons concerned with depositary receipts. — [Mr. Norman Lamont.]

STAMP DUTY (CLEARANCE SERVICES)

Resolved,
That provision may be made with respect to stamp duty in relation to instruments transferring securities to persons concerned with clearance services.—[Mr. Norman Lamont.]

STAMP DUTY RESERVE TAX (DEPOSITARY RECEIPTS)

Resolved,
That provision may be made for charging stamp duty reserve tax where securities are transferred, issued or appropriated after 18th March 1986 in pursuance of an arrangement (whenever made) relating to a depositary receipt.—[Mr. Norman Lamont.]

STAMP DUTY RESERVE TAX (CLEARANCE SERVICES

Resolved,
That provision may be made for charging stamp duty reserve tax where securities are transferred or issued after 18th March 1986 in pursuance of an arrangement (whenever made) relating to the provision of clearance services. — [Mr. Norman Lamont.]

Financial Services Bill

As amended (in the Standing Committee), considered.

Ordered,
That the Financial Services Bill, as amended, he considered in the following order, New Clauses, Amendments to Clause 1, Schedule 1, Clauses 2 to 10, Schedule 2, Clauses 11 to 35, Schedule 3, Clauses 36 to 83, Schedule 4, Clauses 84 to 96, Schedules 5 and 6, Clauses 97 and 98, Schedule 7, Clauses 99 to 110, Schedule 8, Clauses 111 to 117, Schedule 9, Clauses 118 to 142, Schedule 10, Clauses 143 to 166, Schedule 11, Clause 167, Schedule 12, New Schedules and Amendments to Schedule 13.

Sir William Clark: On a point of order, Mr. Deputy Speaker. I should like to make a plea on behalf of Back Benchers. We are now considering a Bill which originally had 176 pages, 167 clauses and 13 schedules. We now have 278 amendments of which 249 are Government amendments. There are also 17 new clauses, of which 14 are Government new clauses.
I hope that the Government will consider Back Benchers on both sides of the House because there has been little time for us to consider the amendments and new clauses. The Government are pushing the working of the House too hard.
I hope that my hon. Friend the Under-Secretary of State will assure me that this will not create a precedent, as it puts Back Benchers into an impossible situation.

Mr. Deputy Speaker (Sir Paul Dean): I am sure that the Government Front Bench have heard what the hon. Gentleman said. I shall, of course, keep a careful eye open for him and any other hon. Member who may wish to catch my eye on the amendments.

New Clause 1

FINANCIAL ASSISTANCE FOR EMPLOYEES' SHARE SCHEMES

'(1) Section 153 of the Companies Act 1985 (transaction not prohibited by section 151) shall be amended as follows.

(2) After subsection (4)(b) there shall be inserted—
(bb) without prejudice to paragraph (b), the provision of financial assistance by a company or any of its subsidiaries for the purposes of or in connectin with anything done by the company (or a company connected with it) for the purpose of enabling or facilitating transactions in shares in the first-mentioned company between or for the benefit of any of the following persons—

(i) the bona fide employees or former employees of that company or of another company in the same group; or
(ii) the wives, husbands, widows, widowes, children or step-children udner the age of eighteen of any such employees or former employees,".

(3) After subsection (4) there shall be inserted—
(5) For the purposes of subsection (4)(bb) a company is connected with another company if —

(a) they are in the same group; or
(b) One is entitled, either alone or with any other company in the same group, to exercise or control the exercise of a majority of the voting rights attributable to ordinary share capital which are exercisable in all circumstances at any general meeting of the other company or of its holding company;
and in this section "group", in relation to a company, means that company, any other company which is its holding company or subsidiary and any other compant which is a subsidiary of that holding company.".'.— [Mr. Howard.]

Brought up, and read the First time.

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Howard): I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it may be convenient to discuss amendment No. 10, in Schedule 1, page 134, line 28 at end insert—
'(1A) Paragraphs 12 to 16 do not apply to anything done by or on behalf of a body corporate, or a body corporate connected with it, or trustees appointed by a body corporate, for the purpose of or in connection with the establishment, operation or administration of an employees' share scheme (as that expression is defined in section 743 of the Companies Act 1985).'.

Mr. Howard: In response to the point of order raised by hon. Friend the Member for Croydon, South (Sir W. Clark), I should like to say that the vast majority of the Government amendments to which he referred emanate from points made in Standing Committee and from correspondence, often from Back Benchers. I hope that he accepts that, in large measure, they represent an attempt by the Government to respond to various anxieties that have been expressed.
New clause 1 springs out of a largely technical matter. As I said when we discussed a related point in Committee, the Government support the introduction of employee share schemes. One incentive that companies might wish to offer with such schemes might be the provision of facilities to allow beneficiaries of the scheme and their dependants to trade easily between themselves. There is room for doubt about whether the provisions of section 153(4)(b) of the Companies Act 1985 are wide enough to allow such facilities to be provided. This clause is intended to put it beyond doubt that they may be provided, up to the limits prescribed in section 154.
Amendment No. 10 concerns an issue that was not raised in Committee. Although I can sympathise with the concerns underlying it, I am not convinced that it is necessary. The Government are strongly in favour of employee share schemes and it is not our intention that employers who introduce such schemes should be required to be authorised. I believe that the existing exclusions in part III of schedule 1 are sufficient to achieve the desired result. I hope that, with that assurance, the hon. Member for Yeovil (Mr. Ashdown) will find it unnecessary to press his amendment.

Mr. Bryan Gould: I cannot help but notice that the new clause is tabled in the name of the Secretary of State, and I cannot continue without expressing, on behalf of, I am sure, the whole House, our most sincere condolences to him on his tragic loss today.
I was interested by the Minister's response to the point of order raised by the hon. Member for Croydon, South (Sir W. Clark) and I was grateful to him for conceding that the length of our agenda and many of the amendments reflect the success of the Standing Committee in persuading the Government that some substantial amendments were required. That is a tribute to my right hon. and hon. Friends and other members of the Committee.
New clause 1 is curious. The Minister conceded that it is technical. It has little to do with the central purpose of the Bill. It is more a matter of company law than

authorisation for investment business. I was grateful to the Minister for his brief explanation of what the new clause is meant to achieve.
The Minister was right to say that we debated employee share schemes in Committee. I expressed the clear view of the Labour party that we favour such schemes in principle. The Minister and others will recall, however, that we argued that the exclusion of such schemes, as provided by paragraph 19 of schedule 1, was rather far-reaching as employees in those circumstances were likely to be inexperienced investors and in a vulnerable context, as they would be subject to all of the pressures of superiors at work. They are also potentially at risk from people with some form of inside information. On that basis, we argued and divided the Committee, when we had the support of the hon. Member for Yeovil (Mr. Ashdown). He voted in favour of an Opposition amendment which suggested that some form of independent advice ought to be provided in an employee share shop.
The Government opposed the amendment, partly on the ground that it would cost more money than was thought acceptable. I imagine that one of the purposes of new clause 1 is to authorise expenditure on setting up a share shop and I wonder whether the Minister has had a moment to reconsider his objection to our earlier amendment. Is he able to enlighten us? Is there anything implicit in the new clause which goes some way to removing his objections to what seemed to many of us a sensible limitation of employers' complete freedom when selling shares in their companies to their work force?

Mr. Paddy Ashdown: Amendment No. 10 was not intended to make a substantial change but to clarify a point. I am advised that paragraph 19 of schedule 1 is not clear enough about whether employee share schemes are included. It seems that the Government's intentions are clear but I am advised that the wording is rather too broad. Perhaps the Minister would be kind enough to explain why he believes that the matter is covered elsewhere to give us some argumentation.
Employee share schemes ought to be covered because a company which operates arrangements for employees or trustees who subscribe to or purchase shares, whether at the outset or on an exercise of options later, seems to fall clearly within paragraphs 12 and 13 of schedule 1. Paragraphs 15 and 16 would seem to apply to other activities which such a share scheme might require. The matter is not defined in the exclusions in clause 67, as is the case with occupational pension schemes.
We believe that if employee share schemes are to be included in paragraph 19 of schedule 1 that should be clear so that there can be no argument about it later. I should be satisfied if the Minister would explain why he thinks the matter is covered elsewhere.

Mr. Howard: Perhaps I may give the hon. Member for Yeovil (Mr. Ashdown) the explanation for which he has asked. We should consider, first, schemes which are operated by the company. The company may, for instance, create new shares to issue to its employees, or arrange for the transfer to them of existing shares, or grant them options. The first case is excluded from the definition of investment business by paragraph 23(3) of schedule 1. which covers the issue by a company of its own shares. The other two cases would both be covered by the exclusion in paragraph 19. This paragraph disapplies paragraphs 12


and 13 generally when the purpose is to facilitate transactions in shares between or for the benefit of employees and their dependants. Given the broad definition of "disposal" in paragraph 23(2), the allotment of shares to employees following the exercise of an option in this context would seem to be a transaction in shares for their benefit. It would therefore be excluded from the definition of investment business under the terms of the paragraph.
When a scheme is run by trustees, they will not benefit from the exclusion in paragraph 19, but unless the trustees are operating the scheme by way of business, the Bill will not apply to them, and no exclusion is necessary. That is why I asserted earlier that amendment No. 10 is not necessary.
I accept, however, that uncertainty is undesirable. The amendment would go too far, but I am prepared to consider whether the clause covers the hon. Gentleman's

New Clause 2

RESTRICTION OF REHABILITATION OF OFFENDERS ACT I974

'(1) The Rehabilitation of Offenders Act 1974 shall have effect subject to the provisions of this section in cases where the spent conviction is for—

(a) an offence involving fraud or other dishonesty; or
(b) an offence under legislation (whether or not of the United Kingdom) relating to companies (including insider dealing), building societies, industrial and provident societies, credit unions, friendly societies, insurance, banking or other financial services, insolvency, consumer credit or consumer protection.

(2) Nothing in section 4(1) (restriction on evidence as to spent convictions in proceedings) shall prevent the determination in any proceedings specified in Part I of Schedule (Restriction of Rehabilitation of Offenders Act 1974) to this Act of any issue, or prevent the admission or requirement in any such proceedings of any evidence, relating to a person's previous convictions for any such offence as is mentioned in subsection (1) above or to circumstances ancillary thereto.

(3) A conviction for any such offence as is mentioned in subsection (1) above shall not be regarded as spent for the purposes of section 4(2) (questions relating to an individual's previous convictions) if—

(a) the question is put by or on behalf of a person specified in the first column of Part II of that Schedule and relates to an individual (whether or not the person questioned) specified in relation to the person putting the question in the second column of that Part; and
(b) the person questioned is informed when the question is put that by virtue of this section convictions for any such offence are to be disclosed.

(4) Section 4(3)(b) (spent conviction not to be ground for excluding person from office, occupation etc.) shall not prevent a person specified in the first column of Part III of that Schedule from taking such action as is specified in relation to that person in the second column of that Part by reason, or partly by reason, of a spent conviction for any such offence as is mentioned in subsection (1) above of an individual who is—

(a) the person in respect of whom the action is taken;
(b) as respects action within paragraph 1 or 4 of that Part, an associate of that person; or
(c) as respects action within paragraph 1 of that Part consisting of a decision to refuse or revoke an order declaring a collective investment scheme to be an authorised unit trust scheme or a recognised scheme, the operator or trustee of the scheme or an associate of his,
or of any circumstances ancillary to such a conviction or of a failure (whether or not by that individual) to disclose such a conviction or any such circumstances.

(5) Parts I, II and III of that Schedule shall have effect subject to Part IV.

(6) In this section and that Schedule "associate" means—

(a) in relation to a body corporate, a director, manager or controller;
(b) in relation to a partnership, a partner or manager;
(c) in relation to a registered friendly society, a trustee, manager of member of the committee of the society;
(d) in relation to an unincorporated association, a member of its governing body or an officer, manager or controller;
(e) in relation to an individual, a manager.

(7) This section and that Schedule shall apply to Northern Ireland with the substitution for the references to the said Act of 1974 and section 4(1), (2) and (3)(b) of that Act of references to the Rehabilitation of Offenders (Northern Ireland) Order 1978 and Article 5(1), (2) and (3)(b) of that Order.'.—[Mr. Howard.]

point completely. If it is necessary to provide greater clarity, I shall ensure that any necessary amendments are brought forward in another place.

I have to disappoint the hon. Member for Dagenham (Mr. Gould), although I suspect that that will come as no great surprise to him. The purpose of the new clause is to facilitate the giving of certain assistance by employers in order to encourage share schemes for their employees and to enable them to spend money if they so wish in a manner in relation to which there is a certain amount of doubt in the present law. That does not begin to constitute a justification for the imposition of additional and unwanted burdens by way of expenses, which led me to oppose the hon. Gentleman's amendment in Committee, which was then the subject of considerable debate.

I fear that the new clause will not give the hon. Member for Dagenham much comfort, but I hope that it commends itself to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

Brought up, and read the First time.

Mr. Howard: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this, it will be convenient to discuss the following: amendment (a) to the new clause, in subsection 6(e) at end insert
'or employee who has contact with clients or prospective clients with a view to obtaining or soliciting orders on behalf of the investment business, advises clients or commits the investment business, for transactions in investments covered by Schedule 1, paragraphs 1, 2, 3, 4, 5, 7 or 8.'.
Government amendments Nos. 232 and 273.

Mr. Howard: A few moments ago I omitted to say, on behalf of my right hon. Friend the Secretary of State, how grateful I was for the condolences offered by the hon. Member for Dagenham (Mr. Gould). I am sure that all my right hon. and hon. Friends will wish to associate themselves with them.
In Committee, I undertook to bring before the House a partial disapplication of the Rehabilitation of Offenders Act. The clause and its related schedule fulfil that undertaking. The complexity and length of the provision indicate the care with which we have focused the disapplication. We have sought to ensure that relevant convictions will be disclosed and that the provisions of the Rehabilitation of Offenders Act will not prevent information about them from being used in appropriate cases when they call into question the fitness and properness of a person to carry on investment business.
7.45 pm
But I have been equally mindful of Parliament's intentions in passing the Rehabilitation of Offenders Act and have sought to limit the disapplication, so as not unacceptably to undermine previous legislation passed by the House which significantly affects the rights of individual citizens. I have restricted the provision so that it concerns only individuals in certain senior positions, and then only in relation to certain offences.
The clause will affect sole traders, partners and those who hold or are to be appointed to senior positions in authorised businesses, or businesses which are applying for authorisation: the positions covered, broadly speaking, are those of director, manager or controller in a company, with appropriate modification for partnerships and unincorporated associations. I propose to follow broadly the definition of manager given in the Banking Act and have tabled an amendment to clause 163 to that effect. The House will see that, under this definition, only those near the top of the hierarchy of a business will be deemed to be managers. Persons holding the same position in companies which have, or apply for, official listing will be affected in the same way: so the new clause will replace clause 130 in the present text of the Bill which provides a less focused disapplication of the Rehabilitation of Offenders Act.
The limiting of a disapplication to those persons who hold these senior positions follows the precedent of the Banking Act. The disclosure of spent convictions by less senior employees of an authorised business would both deprive a large number of people of their rights under the Rehabilitation of Offenders Act and should anyway be unnecessary as their activities will he properly supervised by the management and directors of the authorised business.
Those who will be able to put questions about spent convictions include regulators, be they the Secretary of State, a designated agency, a self-regulating organisation or recognised professional body, the competent authority for listing and a business which is authorised or an applicant for authorisation or official listing.
One novel feature of this provision is that only certain types of spent convictions will need to be disclosed or may be taken into account when determining an application. These are convictions relating to fraud or dishonesty and to offences under specified legislation of a type related to financial services — banking, credit, building societies and so on. It is spent convictions of this nature which may materially affect judgments about an individual's suitability to be in charge of an investment business. Other offences which are of less relevance to the financial services sector will be outside the scope of this clause and the usual provisions of the Rehabilitation of Offenders Act will apply.
Information about relevant spent convictions may be used in determining whether authorisation should be granted, a power of intervention used or employment of a particular individual prohibited. The competent authority may use such information to refuse an application for listing.
I should remind the House that the 1974 Act contains its own built-in safeguards. Convictions do not become spent until substantial prescribed periods have elapsed. Where a conviction results in a custodial sentence in excess of 30 months, it never becomes spent, nor will any other convictions be subsequently incurred. The Act also provides that in any proceedings before a judicial authority evidence relating to spent convictions may be admitted and required if the authority is satisfied that justice cannot otherwise be done. The Act defines
proceedings before a judicial authority
widely, and proceedings concerning authorisation or admission to listing would be covered. So convictions not covered by the specific disapplication which is the object of the current clause will still be able to be taken into account in appropriate circumstances.
I believe, therefore, that the new clause provides the right balance between the need to protect investors by ensuring that responsible authorities are fully aware of the relevant previous convictions of applicants and can take them into account, and the need to maintain important rights granted by Parliament under other legislation.
The amendment tabled by my hon. Friend the Member for Beaconsfield (Mr. Smith) raises a matter which I know to be of concern to the stock exchange. Current estimates suggest that several thousand, perhaps over 5,000, employees of stock exchange member firms will be registered traders and representatives and thus would be caught by the amendment. Many more employees of other investment businesses in similar lines of investment business but not employed by stock exchange firms will also be caught, because the text of the amendment is not confined to the stock exchange.
The amendment would substantially increase the number of those who would be deprived of their rights, given to them by Parliament, through the provisions of the Rehabilitation of Offenders Act. Such a wide-ranging disapplication runs counter to the intentions of the 1974 Act.
Those carrying on the activities described in the amendment will be employees of an authorised business.


They will be subject to the managerial controls of that business and should be properly supervised. There are also safeguards in the Rehabilitation of Offenders Act itself, to which I have just referred.
Whenever one draws a dividing line, one runs the risk of being told that it should have been drawn elsewhere, but I believe that the proposals in the new clause strike the right balance. This amendment would tip that balance too far and deprive too many individuals of their rights under the Rehabilitation of Offenders Act.

Mr. Gould: The Minister was right to remind the House that we debated this matter in Committee. Our short debate then showed clearly that the problem facing the Minister, which he has explained to us again this evening, was to balance two conflicting principles.
The first was the protection and rehabilitation of those who had committed offences. Indeed, that was very much the purpose that Parliament had in mind in passing the 1974 Act. In our debate, that point was stressed by the hon. Member for Chichester (Mr. Nelson). But running counter to that was the importance, in the interest of protecting investors, of making available to the regulatory authorities all the relevant information about those who were authorised. There is inescapably implicit in the notion of authorisation some form of statement by public or quasi-public authorities that the authorised persons have in a sense passed some test or have a clean bill of health. That makes the conflict between the Act's original intention and our quite proper concern for effective investor protection quite difficult to resolve.
The Minister has done an excellent job of drafting the new clause and the schedule. By limiting the class of offence to which the disapplication applies to crimes of dishonesty in relation to financial matters, by limiting the disapplication to procedures essentially created, or provided, by the Bill, and by fairly accurately defining the sorts of relationships between those entitled to ask the questions and those obliged to answer them, the Minister has properly limited the extent of the disapplication. As a consequence, the Minister has struck the right balance in what is clearly a difficult matter.

Mr. Tim Smith: The debate in Standing Committee underlined the fact that there is a conflict of principles. It is a question of balance and of judgment as to where one draws the line. When it comes down to it, I am more interested in protecting the investor than I am in protecting the former crook. One would not know from the debate that that is not a novel restriction. Immediately after the Rehabilitation of Offenders Act was passed, the Government introduced an exception order in 1975 containing exceptions for dealers in securities, insurance companies and authorised unit trusts.
The proposal in the new clause is not unprecedented. In one sense, it is narrower than the existing exceptions, and in another sense it is wider. The proposal is wider because it extends to all the investment business which is covered by the Bill, but narrower because the existing exceptions cover dealers in securities who are not necessarily principals in their firms.
The new clause extends only to directors, managers, partners and their equivalents. Those who will be in the front line dealing with investors may be partners, directors and managers, but often they will be employees. That will be the case in stockbroking firms, which is why the stock

exchange has suggested this amendment. This will also be the case with life assurance salesmen. The stock exchange suggested the amendment because it is worried about the ambit of the new clause and because it believes that the parallel with the Banking Act 1979 is not realistic as the two businesses are different.
The stock exchange says about the Banking Act:
This Act does not have the same aims as the Financial Services Bill, and deals with an area of business which is quite different from the securities industry. Banking and stockbroking are still quite different and it is very unusual for the employee of a bank to give advice to a member of the public or solicit business on a regular, day-to-day basis without referring to his superiors in the way that the employee of a stockbroking firm does.
The employee of a stockbroking firm gives advice to the public without referring to his superiors because he must take decisions quickly. There is no time to refer to a superior about investment advice when prices change regularly. He must make decisions at his discretion and off his own bat.
The stock exchange has a fair point. We should be a little worried about the lack of application of the new clause to life assurance salesmen who will be knocking on doors selling life policies. The Government have decided that there will be no register of life assurance salesmen, but a blacklist. If such information was available, we could. compile a blacklist.

Mr. Anthony Nelson: It is important in the context of debating the new clause to remember the atmosphere in which the Rehabilitation of Offenders Act 1974 was introduced. Hon. Members who were in the House at that time will recall that there was much debate in Standing Committee and in the House to try to ensure that the extent of the restrictions was limited and that the ambit of that legislation was cast sufficiently wide to ensure that those who had spent convictions and had paid their debts to society could, in certain circumstances, start again and make new lives for themselves.
As hon. Members on the Standing Committee will know, I believe that that was a worthy objective and one that we should be circumspect about limiting. We must be clear about the ambit of restriction that we will provide in the new clause. Having said that, I pay tribute to my hon. and learned Friend the Parliamentary Under-Secretary of State, who, in drafting the new clause, took account of the opinions on both sides of the Standing Committee about the matter. Although I may not lean to the same side of the balance as my hon. Friend the Member for Beaconsfield (Mr. Smith), I believe that the Minister has struck a reasonable balance between the two conflicting objectives of the Bill and the previous legislation to try to restore and revitalise the opportunities to rehabilitate offenders.
Before we pass such a new clause, it is important to ask ourselves two questions. First, why are we seeking a restriction with regard to this form of activity? It might be argued in the context of other consumer legislation or other departmental legislation that there were similar grounds for restrictions in other parts of the 1974 Act. I would not wish the passage of the new clause to be considered as something to be built upon in other legislation, in terms of limiting the ambit or reducing the protection to rehabilitated offenders, provided under the 1974 Act. That must be seen as exceptional in the context of new legislation and not something to be extended or repeated elsewhere.
Secondly, it is reasonable to ask whether the rationale behind the new clause is that there is clear evidence that the rate of recidivism among those who have been convicted of fraudulent or other dishonest offences is significantly higher than in other areas. As my hon. and learned Friend the Minister said, the 1974 legislation applies to some and not all spent convictions. One would need to be satisfied in those areas where it applies that there was a danger to the public and that if the new clause was not passed the public would be at greater risk.
I ask my hon. and learned Friend the Minister how it will be apparent to individuals applying for authorisation to carry on a business that they will need to disclose such a spent conviction. Many people who have spent convictions under the Rehabilitation of Offenders Act, and are acutely aware of the provisions of that legislation, may be under the erroneous impression, despite the passage of the new clause, that they need not answer a question put to them by the regulatory authority or anyone else about whether they have had a past conviction. Such a question should be put by the authorising or regulatory authority only when it is seeking to give them authorisation to carry on a business. It must be made clear at that time that they are not covered, as they thought they were, by the terms of the 1974 Act. Otherwise, for genuine reasons, many people might unwittingly transgress the new legislation thinking that they are protected by the provisions of the 1974 Act.
I also ask my hon. and learned Friend whether the disclosure of a spent conviction for the purposes of the legislation necessarily means that the supervisory authority will not grant authorisation to that sole trader or business. It is exceedingly difficult to ask either the Secretary of State or the designated agency to say in some cases, "Although you have declared a past conviction, we nevertheless believe that it was not sufficiently serious or not so relevant to the business for which you are seeking authorisation that we must refuse your application."
In some cases, a sole trader setting up an investment business with such a spent conviction may have reasonable grounds for being allowed to proceed with such a business and it should not mean automatic disqualification. If it implies automatic disqualification, there will be a further disincentive on the individual to come clean about that.
Many of those points have been covered to some extent in the drafting of the new clause, and I commend it, as other hon. Members have, to the House. I refer to a representation made to me, which does not agree with my view but which refers to the amendment moved by my hon. Friend the Member for Beaconsfield. Today, I received a letter from the chairman of the Securities and Investments Board, which states:
We believe that as presently worded the clause is too narrow in its scope since it would permit the non-disclosure of convictions by employees (and prospective employees) of authorised businesses, some of whom might be placed in positions of great trust and responsibility; and also by anyone seeking exempt (or appointed) representative status under Clause 41. There is obviously a difficult balance to be struck here between the interests of investors on the one hand and the underlying aims of the Rehabilitation of Offenders Act on the other, but we still feel that rather more weight should be given to the former, as was done in relation to securities businesses in the Rehabilitation of Offenders Act 1974 (Exceptions) Order 1975.

For reasons that I have already adduced, I do not go along with that representation, but in all fairness it should be put before the House tonight.

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Mr. D. N. Campbell-Savours: I do not want to prolong the debate, but I want to ask a question, although it does not specifically relate to the matters that we are dealing with under the Bill so far as we are not dealing with Lloyd's. Will the Minister explain whether the disclosure arrangements which would exist under the Bill, subject to the Rehabilitation of Offenders Act 1974, have their parallel under the Lloyd's Act 1982? Are managing agents and operating officers within syndicates of Lloyd's required to comply with a similar provision? If not, to what extent is investor protection as adequately covered as it appears that it will be if the new clause were to have the approval of the House?

Mr. John Butterfill: I rise briefly merely to say that I obviously respect the views put forward by my hon. Friend the Member for Chichester (Mr. Nelson) whose personal commitment and that of his family to the rehabilitation of offenders is well known to hon. Members. Nevertheless, I feel, rather as does my hon. Friend the Member for Beaconsfield (Mr. Smith), that if we are to strike a balance, in these particular circumstances we must err on the side of caution since the people about whom we are talking will be dealing with other people's money, usually the money of relatively small investors and usually money which is on an extremely large scale for those investors. Therefore. I tend to agree with Sir Kenneth Berrill that we should err even more on the side of caution than my hon. and learned Friend the Minister suggests in the new clause.

Mr. Howard: First, I thank the hon. Member for Dagenham (Mr. Gould), whose endorsement of the new clause was rather more enthusiastic than that of my hon. Friends. I am grateful too for the endorsement, however qualified, of my hon. Friend the Member for Chichester (Mr. Nelson) and I shall endeavour to respond to his three specific questions. First. I regret that I am not in a position to give him any of the statistics on recidivism which would assist him in formulating his position on the new clause. I doubt whether they are available, but whether they are or are not they are certainly not available to me this evening.
My hon. Friend's second question was whether someone would know that the 1974 Act was disapplied and that he was obliged to answer the questions being put to him. I think that my hon. Friend will find that that matter is specifically and expressly covered in paragraph 3(b) of the new clause, which provides that the person questioned has to be informed when the question is put that by virtue of the section convictions for any such offence are to be disclosed. I think that that covers my hon. Friend's point.
Thirdly, my hon. Friend asked whether the disclosure of such a conviction would amount to an automatic disqualification rather than simply something to be taken into account in assessing whether the applicant should be employed or authorised. There would be no question of automatic disqualification. The conviction would be a matter to be taken into account together with the rest of


the record of antecedents and character of the person concerned. I hope that that satisfies my hon. Friend on those three questions.
Of course, I understand the concern which my hon. Friend drew to the the attention of the House, which has been put forward by the Securities and Investments Board and which was commended to the House by my hon. Friends the Members for Beaconsfield (Mr. Smith) and for Bournemouth, West (Mr. Butterfill). As I think everyone recognises, this is a difficult balance to strike. Clearly, it is not the sort of balance on which it is possible to please everyone. Had I pleased my hon. Friends the Members for Beaconsfield and for Bournemouth, West, I should not have pleased my hon. Friend the Member for Chichester, nor indeed the hon. Member for Dagenham. We have attempted to strike the best balance in our judgment. It is perhaps easier for the stock exchange or, indeed, the Securities and Investments Board, which tend, perfectly understandably, and properly from their point of view, to look at a question such as this from a particular point of view and to see only one side of the question or to see one side of the question in a much more immediate perspective than the other side.
We in this House have a duty to make a much more balanced judgment. It is incumbent upon us to take into account the policy considerations that led to the passing of the Rehabilitation of Offenders Act and to give them full weight in any judgment that we make. It is for that reason that I suggest that the proper balance is that which is represented by the new clause which I commend to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 3

POWERS OF ENTRY

'(1) A justice of the peace may issue a warrant under this section if satisfied on information on oath laid by or on behalf of the Secretary of State that there are reasonable grounds for believing—

(a) that an offence has been committed under section 4, 44, 52. 111, 114 or 141(2) or (3) above or section 1, 2.4 or 5 of the Company Securities (Insider Dealing) Act 1985 and that there are on any premises documents relevant to the question whether that offence has been committed; or
(b) that there are on any premises owned or occupied by a person whose affairs, or any aspect of whose affairs. are being investigated under section 92 above documents whose production has been required under that section and which have not been produced in compliance with that requirement;
but paragraph (b) above applies only if the person there mentioned is an authorised person, a person whose authorisation has been suspended or who is the subject of a direction under section 32(1) (b) above or an appointed representative of an authorised person.

(2) A justice of the peace may issue a warrant under this section if satisfied on information on oath laid by an inspector appointed under section 81 above that there are reasonable grounds for believing that there are on any premises owned or occupied by—

(a) the manager, trustee or operator of any scheme the affairs of which are being investigated under subsection (1) of that section; or
(b) a manager. trustee or operator whose affairs are being investigated under that subsection,
any documents whose production has been required under that section and which have not been produced in compliance with that requirement.

(3) A warrant under this section shall authorise a constable, together with any other person named in it and any other constables—

(a) to enter the premises specified in the information, using such force as is reasonably necessary for the purpose;
(b) to search the premises and take possession of any documents appearing to be such documents as are mentioned in subsection (1)(a) or (b) or, as the case may be, in subsection (2) above or to take, in relation to any such documents, any other steps which may appear to be necessary for preserving them or preventing interference with them;
(c) to take copies of any such documents; and
(d) to require any person named in the warrant to provide an explanation of them or to state where they may he found.

(4) A warrant under this section shall continue in force until the end of the period of one month beginning with the day on which it is issued.

(5) Any documents of which possession is taken under this section may be retained—

(a) for a period of three months; or
(b) if within that period proceedings to which the documents are relevant are commenced against any person for an offence under this Act or section 1, 2, 4 or 5 of the said Act of 1985, until the conclusion of those proceedings.

(6) Any person who obstructs the exercise of any rights conferred by a warrant issued under this section or fails without reasonable excuse to comply with any requirement imposed in accordance with subsection (3)(d) above shall be guilty of an offence and liable—

(a) on conviction on indictment, to a fine;
(b) on summary conviction, to a fine not exceeding the statutory maximum.

(7) The functions to which section 96 above applies shall include the functions of the Secretary of State under this section; but if any of those functions are transferred under that section the transfer may be subject to a reservation that they are to be exercisable by the Secretary of State concurrently with the designated agency and, in the case of functions exercisable by virtue of subsection (1)(a) above, so as to be exercisable by the agency subject to such conditions or restrictions as the Secretary of State may from time to time impose.

(8) In the application of this section to Scotland the references to a justice of the peace shall include references to a sheriff and for references to the laying of information on oath there shall be substituted references to furnishing evidence on oath; and in the application of this section to Northern Ireland for references to the laying of information on oath there shall be substituted references to making a complaint on oath.

(9) In this section "documents" includes information recorded in any form and, in relation to information recorded otherwise than in legible form, references to its production include references to producing a copy of the information in legible form.'—[Mr. Howard.]

Brought up, and read the First time.

Mr. Howard: I beg to move, That the clause be read a Second time.
I shall have a word with the hon. Member for Workington (Mr. Campbell-Savours) and answer the point that he made in the previous debate. I apologise for not having done so during the course of the debate.
During the debate in Committee on amendments tabled by the hon. Member for Dagenham (Mr. Gould) on powers of entry, I undertook to look again at the matter, and this new clause has been tabled to make provision for search warrants to be issued by justices of the peace on the Secretary of State's application. There are precedents for our proposals in the Prevention of Fraud (Investments) Act 1958, which is to be replaced by this Bill, and in the Companies Act 1985.
Warrants may be issued with a view to obtaining documents in three types of case. The first relates to suspected offences. The corresponding provision in the Prevention of Fraud (Investments) Act relates only to breaching the restrictions on advertising. That is too narrow and the new clause therefore also embraces a number of other offences concerning unauthorised investment business, misleading statements and practices, restrictions on promoting insurance contracts, unlisted securities and insider dealing.
The second and third types of case covered by the clause are designed to reinforce the investigation powers in clause 92, when investigating authorised and certain other persons, and in clause 81. If these powers are used to require the production of documents which are not produced in compliance with the requirement, a search warrant may be issued. A corresponding provision exists in section 448 of the Companies Act, designed to reinforce the power to obtain documents in section 447.
We have considered carefully whether to limit the exercise of these powers in relation to entering the premises of third parties. A limitation is not considered appropriate where a criminal offence is suspected, but use of the power to reinforce an investigation under clauses 81 or 92 may only permit entry of premises owned or occupied by the person under investigation, or by the manager, trustee or operator of a collective investment scheme.
The new clause provides for the powers which a warrant may authorise the police and other named persons to exercise, including the power to seize documents, and to demand explanations of them. Obstruction is to be an offence.
The Secretary of State's function of applying to a justice of the peace for a search warrant is one which may be transferred to the designated agency. The normal criteria for transferring functions will have to be met, and the Secretary of State may also impose conditions and restrictions on how the function is to be exercised in the case of a suspected offence. We consider that these are sufficient safeguards for applications by the agency, which will, like the Secretary of State, have to satisfy the justice of the peace that there are reasonable grounds for believing that relevant documents are on the premises in question. It would be cumbersome if the agency had to ask the Secretary of State to make applications for search warrants on its behalf, and delay would carry the risk of documents being moved or destroyed. It would be possible for the Secretary of State to retain the ability to apply for a warrant without affecting the agency's powers to do so.
The Government believe that these new powers, founded on precedents in other legislation, will improve the effectiveness of the new regulatory regime.

Mr. Gould: The new clause is a welcome recognition of the fact that the powers hitherto provided by section 14(8) of the Prevention of Fraud (Investments) Act 1958 are still necessary.
The Minister was right to recall that in Committee I tabled an amendment to the same effect, but not so expertly drafted as the new clause. At that point the Minister took the view that clause 92 provided adequate powers, but I gather from what he now says that he recognises that a power of entry into premises is important. That is the view that we took at the time. We

argued that, particularly in today's circumstances, it was of immense importance, when dealing with hardened unscrupulous criminals, that it should be possible to insist on entry to make a search, and that if that power was thought to be necessary in 1958, it was much more necessary today.
The Minister agreed with the suggestion of my hon. Friend the Member for Workington (Mr. Campbell-Savours) to consult the Securities and Investments Board about this matter. I am glad that the SIB is to have a concurrent power in this matter. The Minister's consultations with the SIB have produced a welcome outcome.
We perhaps raise an eyebrow at the limitation of the right to enter premises occupied by third parties, but I understand the Minister's reasoning for that. In broad terms we are satisfied that this power, for which we argued so strongly in Committee, is now to find a place in the Bill.

Mr. Nelson: The new clause marks a significant extension of the powers of investigation, which I welcome generally, in aid of the protection of investors.
First, I understood my hon. and learned Friend the Minister to say, and it is my understanding from the terms of the new clause, that the claim for a warrant comes into effect only where the request to disclose documents has not been satisfied. Can he confirm that that is correct? I cannot imagine many circumstances, for example, in a case of suspected insider dealing, where an individual who is asked to produce his stock contracts to show whether he has been engaged in share transactions and refuses will leave those contracts lying around long enough for a warrant to be issued and a search to be made. I am not sure whether it is intended that the powers can be invoked and a warrant issued before the other means of investigation have been satisfied.
Like the hon. Member for Dagenham (Mr. Gould), I am pleased that these powers can be applied concurrently by the SIB — the designated agency. That leaves a necessary option open which will ensure that the SIB has the means and ability to do its job, not just to supervise academically.
My second question relates to the relevance of the new clause to unauthorised persons. I am not entirely clear whether, under subsection (1), the powers to request a warrant apply only in the case of authorised businesses. What is the position for a suspected unauthorised person who may be committing a criminal offence under these provisions? What is the position for any individual, authorised or unauthorised, who may be committing the criminal offence of insider dealing? As I understand it, the power to claim a warrant in such circumstances is already provided for in separate legislation. Will my hon. and learned Friend clarify that this right to claim a warrant applies in all cases, not just those of authorised businesses?

Mr. Campbell-Savours: This debate gives the House an opportunity to have an early shot at one of the more controversial areas of the Bill. The issue is not so much the powers, which the majority of hon. Members accept as being important if the protection of investors is to be upheld and the law is to be complied with, but whether it is right that a private organisation should be able to exercise such powers in our society. I know of no precedent for this.
It is important to establish for those outside that the SIB is a private company. A private company which is no


different from Securior or a private policeman will police the City. [Interruption.] We have discussed the matter at length over 22 sittings in Committee, and during the past few months most of the arguments behind the scenes have been about that or the question of immunity, about which the Minister has been more flexible and has, perhaps, produced a reasonable alternative.
8.15 pm
Clause 93 states:
The Secretary of State may authorise any officer of his or any other competent person to exercise on his behalf all or any of the powers conferred by section 92.
Basically the Secretary of State is allowing a private company to exercise these considerable responsibilities. Therefore, under the new clause a private company will be allowed to apply to a justice of the peace to secure a warrant, and with that warrant it will be able to enter
on any premises owned or occupied by a person whose affairs, or any aspect of whose affairs, are being investigated under section 92.
That is a substantial power to give to a private organisation, and I must register my strong objection at this stage. It is not that we wish to vote against the matter tonight—we do not have the time to do so because we have many amendments and important matters to discuss —but this area shows up the deficiencies that lie at the heart of the legislation.

Mr. Howard: I am grateful for the support for the new clause extended by the hon. Member for Dagenham (Mr. Gould) and my hon. Friend the Member for Chichester (Mr. Nelson).
The answer to my hon. Friend is that it is not necessary, contrary to his understanding, that a prior request should have been made for the documents if an offence is suspected and a justice of the peace is satisfied that there are grounds for believing that the documents are on the premises concerned. The answer to the questions about whose premises may be entered pursuant to the powers granted in the new clause, where an offence is suspected of the type that is identified in subsection (1) of the new clause, is that anyone's premises may be entered. I hope that those two answers reassure my hon. Friend.
I have no desire to cross swords with the hon. Member for Workington (Mr. Campbell-Savours), particularly at this early stage in our proceedings. I make no apology for the Fact that these powers are to be entrusted to a private body. As I made plain repeatedly in Committee, it is my firm conviction that the role that is to be entrusted to a private body under the legislation will be discharged the more effectively because it is a private body. To suggest, as the hon. Gentleman did, that the private body would be just like Securicor, which was his analogy, is fanciful. Before the private body was designated by the Secretary of State it would have to satisfy exacting criteria prescribed in the legislation. This provides a real safeguard of the responsibility of the private body to which these powers could be entrusted.

Mr. Gerald Bermingham: If the Minister is thinking along the lines that the power of investigation of this new body can be enhanced by these new powers of search and seize, will he consider extending similar powers to Lloyd's or to other self-regulating bodies for the investigation of insurance frauds?

Mr. Howard: We are not concerned with Lloyd's or with other self-regulating bodies in the new clause or in the

legislation, and I have given the reasons for that. I have carefully considered the points that were raised during our proceedings in Committee and I have been persuaded that it is appropriate for powers of this kind to be preferred. I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 5

EXEMPTION FROM LIABILITY FOR DAMAGES

'(1) Neither a recognised self-regulating organisation nor any of its officers or servants or members of its governing body shall be liable in damages for anything done or omitted in the discharge or purported discharge of any functions to which this subsection applies unless the act or omission is shown to have been in had faith.

(2) The functions to which subsection (1) above applies are the functions of the organisation so far as relating to, or to matters arising out of—

(a) the rules, practices, powers and arrangements of the organisation to which the requirements in paragraphs 1 to 6 of Schedule 2 to this Act apply;
(b) the obligations with which paragraph 7 of that Schedule requires the organisation to comply;
(c) any guidance issued by the organisation;
(d) the powers of the organisation under section 49(2), 59(4) or 92(2)(a) above; or
(e) the obligations to which the organisation is subject by virtue of this Act.

(3) Neither a designated agency nor any member, officer or servant of a designated agency shall be liable in damages for anything done or omitted in the discharge or purported discharge of the functions exercisable by the agency by virtue of a delegation order unless the act or omission is shown to have been in had faith.

(4) Neither the competent authority nor any member, officer, or servant of that authority shall be liable in damages for anything done or omitted in the discharge or purported discharge of any functions of the authority under Part IV of this Act unless the act or omission is shown to have been in had faith.

(5) The functions to which subsections (1) and (3) above apply also include any functions exercisable by a recognised self-regulating organisation or designated agency on behalf of another body by virtue of arrangements made pursuant to paragraph 4(2) of Schedule 2, paragraph 3(2) of Schedule 3 and paragraph 3(2) of Schedule 5 to this Act.'. — [Mr. Howard.]

Brought up, and read the First time]

Mr. Howard: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Harold Walker): With this it will be convenient to discuss also the following: amendment (b) to the new clause, in subsection (1), after "damages", insert—
'at the suit of any member of the self-regulating organisation or of any person, whether authorised or not, whom the organisation is authorised by this Act to investigate or supervise'.

Amendment (a), after subsection (2), insert—
'(2A) Neither a recognised professional body nor any member, officer or servant of that body shall be liable in damages for anything done or omitted in the discharge or purported discharge of the functions exercisable by the body by virtue of a recognition order unless the act or omission is shown to have been in bad faith.'.

Amendment (c), after subsection (2), insert—
'(2A) Neither a recognised professional body nor any of its officers or servants or members of its governing body shall be liable for damages or purported discharge of any functions to which this subsection applies unless the act or omission is shown to have been in bad faith.

(2B) The function to which subsection (2A) above applies are the functions of the body so far as relating to, or to matters arising out of—

(a) the rules, practices, powers and arrangements of the body to which the requirements in section 18(2) apply;
(b) any guidance issued by the body;
(c) the powers of the body under section 49(2) or 92(2) (a) above; or
(d) the obligations to which the body is subject by virtue of this Act.'.

Government amendments Nos. 42, 44, 161, 179 and 230.

Mr. Howard: This new clause touches upon a matter that has perhaps aroused a degree of controversy since the Government's decision was announced. The new clause is of considerable importance and it is appropriate for me to speak about it at greater length than I have spoken about the new clauses that we have so far considered.
When we debated this matter in Committee I said, and no doubt I shall be reminded of it, that in principle regulators should be liable for damages and that the onus was on those who favoured immunity to make the case for it. I remain of that view. I was not then convinced that a case had been made for granting immunity for recognised self-regulatory organisations. However, consistent with the open-minded and receptive attitude that I hope the House will think I have sought to display throughout the proceedings, I am now convinced that the case has been made for doing so.

Mr. Gould: The Minister feels that his conversion is consistent with an open-minded attitude, but is it consistent with the principle that he expressed in Committee'?

Mr. Howard: Of course it is. Principles must govern our approach to these things, and it is in the application of those principles that flexibility is appropriate. I shall seek to explain to the House why I have changed my view. I would not have been prepared to consider granting immunity to recognised self-regulatory organizations unless I believed that it was necessary to do so to ensure the effective enforcement of the Bill's provisions. On reflection, I have come to the view that immunity along the lines proposed will significantly strengthen the Bill.
Two factors led me to that conclusion. The first is that, if regulation is to be effective, a recognised self-regulating organisation needs to be able to act swiftly and decisively, sometimes on less than conclusive evidence, if it seems necessary to do so in the interest of investors. However, its financial resources will often be smaller than those of its members or others affected by its actions. There is a real risk that the prospect of a number of large claims for damages would deter a recognised self-regulating organisation from taking the actions that it believed to be necessary. That would not be in the interests of investors.

Mr. Budgen: It seems to be put abroad by the stock exchange that every time, with the benefit of hindsight, that it could be said that a judgment was mistaken, that would lead to a successful claim for negligence. If it was obvious to a judge that a regulatory authority had to move swiftly and decisively, he would have that factor in mind. That would lead to his saying that there had not been negligence. It is right, is it not, that the stock exchange has no immunity, but has never been successfully sued?

Mr. Howard: Everything that my hon. Friend says is correct. The fact that speedy action had to be taken would be taken into account in assessing whether the regulating organisation had been negligent. What my hon. Friend said about the record of the stock exchange is also true. However, he underestimates the inhibition under which an organisation of this kind may labour if at every turn, and whenever it has to make a difficult decision of this kind, it has to contemplate the possibility of action. That is at the heart of this matter. The stress and demands on the financial resources of the self-regulating organisations that are likely to arise through litigation, even if, ultimately, the regulating organisation were to be successful in that litigation, also have to be taken into account.

Mr. Campbell-Savours: Perhaps the Minister could clarify his response to the hon. Member for Wolverhampton, South-West (Mr. Budgen), who asked about the stock exchange. I understand that the stock exchange produced a report on the Westland affair and the trading of shares. I also understand that it was not able to publish that document for fear of litigation and a series of actions. That document has still not been published. Is that not an example of how the fear of litigation is enough to quell the keenness of an organisation to pursue what is right and proper?

Mr. Howard: I hope that the hon. Member for Workington and the House will forgive me if I do not yield to the temptation to comment on specific cases. As a general principle, there is little doubt that the principle which I have put before the House and which. I think, is endorsed by the hon. Member for Workington undoubtedly applies.

Mr. Bermingham: Does the Minister not agree that the mere threat of litigation acts as a form of discipline? If one is answerable for one's decisions, one tends to take them carefully.

Mr. Howard: The hon. Gentleman leaves out of account the nature of the decision that a regulating organisation has to take. The important thing is that it should not be inhibited from taking action. It is not simply a question of making sure that the action that it takes is correct, but the fact that the action needs to be taken very often on information that is less than 100 per cent. accurate. No doubt a regulating organisation would like it to be 100 per cent. accurate. It may be less than wholly convincing, perhaps flawed, but nevertheless it may justify the self-regulating organisation in taking immediate action. The prospect of litigation brought by big battalions with large pockets may well inhibit the taking of that kind of effective action in the circumstances that we are postulating.

Mr. Ashdown: Why did the Minister not respond earlier with that sort of argument? The case was put to him in precisely the same terms in Committee and it took the arm twisting—no other phrase is appropriate—of a sitting in order to make him move position. In Committee he did not listen to precisely the same argument to which he is now responding.

Mr. Howard: The hon. Member for Workington's reading of the situation is much more perceptive and accurate than the construction that the hon. Member for Yeovil (Mr. Ashdown) seeks to place on it. Of course one listens, but one is not necessarily convinced immediately.


One reflects upon the argument, and in some circumstances one reaches a more mature and wiser conclusion.

Mr. Butterfill: Does my hon. and learned Friend agree that perhaps ISRO is a far better example than the stock exchange? Decisions can be taken involving hundreds of millions of pounds or dollars. In cases like that, if ISRO were liable, it could not possibly function.

Mr. Howard: My hon. Friend is absolutely right.
I shall now pass on to the second factor of which I have taken account in arriving at my view on this matter. I make no apology for drawing it to the attention of the House, because it is a factor to which any responsible person making judgments on these issues would have to give a great deal of weight. As it became clear on considering this matter, there is a real danger that individuals might be reluctant to work for, or serve on, the governing bodies of RSROs if there were a risk of a personal liability in damages for actions undertaken in good faith. It is essential — I hope that this at least will be common ground — if self-regulation is to work properly that RSROs should employ and be run by people of the highest calibre. Anything that would deter such people from joining RSROs could seriously affect the effectiveness of the organisations in regulating investment business. This would clearly be an undesirable development which we should avoid if at all possible.

Mr. William Cash: The Committee went in great detail into the questions of who are fit and proper persons and who should run these organisations. My hon. and learned Friend gave me an extremely learned letter from his Department about who was a fit and proper person. However, a further question arises here. Does the act or omission by anybody within such an organisation have to be shown to have been in bad faith? That leads us to the alternative question that arises in connection with acts or omissions that amount to negligence. If my hon. Friend cannot answer now, perhaps he will let me have a note about whether this matter could be dealt with by insurance arrangements, whether inquiries have been made as to what the potential liability would be, and whether it would not have been possible for the self-regulatory organisations to arrange insurance in those circumstances.

Mr. Howard: I am happy to promise my hon. Friend that I shall let him have a note on those matters, although I cannot promise that it will be as long and as learned as that which he received on the definition of "fit and proper". I can give him some preliminary signs. There is no doubt that inquiries were made about the availability of insurance, and it is no secret that the availability of insurance in this sector is becoming increasingly difficult and expensive. I put the matter in modest terms as a preliminary response, and I shall endeavour to add to it when I write to my hon. Friend.

Mr. Budgen: Might there not have been a case for giving some form of temporary immunity, or partial immunity, so that when the Act, if the Bill is passed, and the insurance matter have settled down it might be possible to see that the regulators are insured? If it is not possible for them to be insured, it might not be possible to have a system of private regulation of this market.

Mr. Howard: My hon. Friend makes a tempting point, but the absence of insurance was not the only factor that weighed with me. As I have sought to explain, there were a number of factors, and, even if insurance were available, it would not have met all the factors that I have identified.
For those reasons, I came to the conclusion that it would be right to grant RSROs an immunity similar to that which was in any event provided for the designated agency and the competent authority. This new clause brings all the immunity provisions in the Bill together, and clause 118(9) and schedule 7, paragraph 3, are therefore to be deleted. In each case the immunity is granted to the body itself and to its officers and servants for any acts or omissions in discharge or purported discharge of certain functions—effectively, the functions which they perform in maintaining the regulatory structure for which the Bill provides. The immunity is restricted to an immunity from liability for damages, and it does not apply when an act or omission can be shown to be in bad faith.
The proposed immunity will still leave interested parties with the possibility of redress. Investors who have suffered loss as a result of a business breaching an RSRO's rules will still be able to sue the business for damages, and compensation schemes will be available. Members of an organisation will be able to use the organisation's appeals procedures against unfair decisions. It will still be possible to seek a declaration setting out the rights and wrongs of the situation or an injunction to stop or prevent an unlawful act or requiring an RSRO to act lawfully. Damages can still be sought where an act or omission is the result of had faith.
In the light of the immunity conferred under the new clause, the second half of clause 14(7) is no longer appropriate, and it is deleted by amendment No. 42 Amendment No. 44 similarly deletes the second half of clause 20(5). A failure to provide information required by clause 14 or 20 will still provide grounds for revocation of a recognition order or in the case of an RSRO the exercise of the Secretary of State's or designated agency's intermediate sanctions. Amendment No. 161 has the effect that the same consequences would follow from a failure to provide information required under clause 91.
I believe that the balance that we have struck should remove lingering fears on the part of potential RSROs while leaving adequate remedies in place for aggrieved parties. I commend the proposals to the House.
My hon. Friend the Member for Beaconsfield (Mr. Smith) and the right hon. Member for Glasgow, Govan (Mr. Millan) have proposed that recognised professional bodies should have a similar immunity, but that suggestion overlooks, it seems to me, the differences that there will be between RPBs and RSROs. The RPBs will be regulating a much narrower range of business on a much smaller scale than will RSROs. The prospect of a number of large claims against an RPB is therefore much smaller than in the case of an RSRO. In these circumstances, I do not believe that it would be appropriate to extend immunity to RPBs. Further, it would certainly be anomalous for RPBs to have immunity when they are incidental aspects of their members' business when they do not have it, and do not appear to have needed it, in relation to the regulation of their members' mainstream professional practice.
The hon. Member for Dagenham suggested that an RSRO should still be liable for damages to investors, but this could still leave it at risk from a number of large claims. A regulator will face a number of difficult choices


in deciding when to act. One of the most difficult issues is deciding when to remove a business's authorisation, particularly on solvency grounds. The situation is rarely clear-cut. There are always arguments that, given another week or so, more capital can be found or a valuable asset sold and the problem will be resolved. The interests of existing clients and others already dealing with a business will often suffer if authorisation is removed, but such action may nevertheless be necessary to prevent harm to future clients.
Existing clients and those dealing with a business would, of course, suffer more seriously if the business collapsed, but they may claim that the supervisor's action was unnecessary and that the business would not have collapsed if given more time. They might then bring an action for damages against the supervisor on the ground that their loss was the direct result of the supervisor's intervention. The parties bringing such an action might themselves be large financial businesses — the big battalions of the international financial world. For example, a United States securities firm might use a British RSRO member to manage its clients United Kingdom portfolio. If the RSRO expelled the British business, or stopped it undertaking particular activities, because of concern about its solvency, the US firm might sue the RSRO for the loss that it suffered as a result — for example, of missed opportunities or damage to reputation. This threat could he a very serious one, and could put the RSRO's future at risk.
Supervisors should not have such a threat hanging over them when taking difficult decisions. If they have, the quality and effectiveness of regulation and the interests of investors will suffer. As I have explained, investors will still be able to claim against a business which had broken the rules or, if appropriate, the compensation fund, and I do not believe that the proposed immunity will seriously affect their interests.

Mr. Bermingham: Can the hon. and learned Gentleman explain the difference between a supervisor or a regulator in those circumstances and a liquidator acting either under a debenture or some other power? The liquidator or receiver is equally liable for his actions, his misfeasances and the mistakes that he makes. Why is the regulator in a different position?

Mr. Howard: There are two answers to that question. First, I do not believe that liquidators operate in the same kind of world that we are contemplating in the context of this legislation. I do not believe that they run the risk in the same way of actions being brought or threatened by the largest financial battalions in the world which might well be able to use the very power of mounting effective and expensive litigation to bring pressure to bear on the regulators.
Secondly, and on a purely practical basis, so far as I am aware no one has refused to act as a liquidator because immunity of this kind is not available. But, as I said earlier, I make no apology for the fact that if we are to get an effective regulatory system in operation, it is essential that we get people of the right calibre to accept the responsibilities of serving on these organisations. That is not a difficulty that is encountered in the context of liquidators, but it most certainly is a difficulty encountered in this context.

Mr. Ashdown: The Minister's comments have been very revealing. The reason for this remarkale Pauline conversion—no doubt the result of this time bomb that has been ticking away in his head as a result of the arguments advanced in Committee—is revealed as being brought about the refusal of the SROs to recruit people to be their officers and members unless such immunities have been granted. In other words, his arm has been twisted to change his mind.

Mr. Howard: The hon. Gentleman fails to understand the position. The fact that it was important to ensure that people of the right calibre were prepared to serve on the SROs was a matter that I took into account. I suggest that anyone who failed to take that into account would have been utterly irresponsible.
I have also reflected on the other arguments that were put in Committee, which I have summarised this evening. It is on a totality of those considerations that I suggest that the view that I presently take is to be preferred to the view that I expressed in Committee.

Mr. Gould: Listening to the debate, I had the sense of watching one of those courtly dances, where at a given moment in the tune the dancers suddenly exchange positions and take up those formerly occupied by their partners. The Minister's manoeuvre has been so bewildering that one is entitled to ask who is calling the tune. The hon. Member for Yeovil (Mr. Ashdown) is right to suggest that the Minister has changed his mind in such a bewildering way because he has been got at by extremely powerful interests in the City. They have done so in such a way, and so thoroughly, as to call into question something that had hitherto been common ground, at least within the Committee — the desirability of self-regulation.
The Minister fairly recalled that the whole question of immunity for SROs was raised through an amendment tabled by myself. We pointed out that for very good reasons immunity had been granted to the Securities and Investments Board or to the designated agency, and we felt that it was equally necessary in respect of the SROs. That view was supported across the Committee, although not by every hon. Member. Indeed, I seem to recall that the hon. Member for Bournemouth, West (Mr. Butterfill)— who has also done his little minuet—was very much opposed to any form of immunity, let alone the blanket immunity now proposed in the new clause. However, there was all-party support for some form of immunity, and that in turn was given powerful support by a campaign mounted by the SROs and the SIB.
The case advanced by myself and others who spoke in favour of immunity was to the effect that without it any SRO would be inhibited — indeed, frustrated — in the performance of its duties not by the constant threat of being liable for vast damages but by the real possibility of the issuing of writs and so on. We felt that the SRO would simply find itself incapable of proceeding against those whom it was its duty to regulate. It therefore seemed to us to be extremely important that, if we were to place reliance on the SROs, they should not be frustrated from the outset by being put at risk as a result of actions by those whom they were meant to be regulating.
8.45 pm
The Minister's reaction was to say:
In principle, regulators should be liable for damages.


We advanced the argument that that was indeed a good principle, but that there was a countervailing principle which meant that in the interests of effective regulation the SROs needed a limited immunity. The Minister later returned to the argument when he said:
It is common ground between us that self-regulating organisations should not have immunity from suit on the part of investors."—[Official Report, Standing Committee E, 11 February 1986; c. 174, 182.]
That was something with which I readily agreed, but the whole burden and thrust of my argument was that it was immunity at the suit of those who were supposed to be regulated that was important and desirable.
Yet, after these firm statements of principle and agreement with me about the importance of absence of immunity in the case of actions brought by investors, the Minister is suddenly converted not only to the idea of immunity against those who are to he regulated: he also abandons the common ground that he had sought with me and staked out. He now says that there should be not only immunity of the sort covered by the amendment but a blanket immunity that will extend to actions from any quarter, including actions brought by small investors who may well feel aggrieved at some glaring dereliction of duty on the part of an SRO.
It may be that the Minister was so appalled by the admission that he made to the Committee, elicited from him by a question by my hon. Friend the Member for Workington (Mr. Campbell-Savours), that he was prepared to contemplate SROs going bankrupt—that he has now swung around entirely in order to expunge from his memory the fact that he ever made such an astonishing confession.
But, for whatever reason, I believe that the Minister has now trod a path that we know is fraught with difficulties and danger. In Committee, I drew attention to the provisions of the Lloyd's Act, and reminded the Committee that when Lloyd's piloted its own private Bill through the House it had strongly argued for immunity on the ground that I was prepared to argue for— that it needed that immunity in order to be an effective regulator. In other words, it needed to be able to be tough with those in respect of whom it was entrusted with the duty of regulating, without being threatened with action.
I pointed out that Lloyd's was tempted —I suspect more than tempted and, indeed, set about—to use that immunity in the case of the PCW scandal not in order to be a more effective regulator but to protect itself against its own failures as a regulator. It would use that immunity to prevent any action brought by aggrieved investors in the PCW syndicates who believed that Lloyd's had fallen clown in its duty.
The clear view of many people is that Lloyd's did fall down in its duty, and, while one does not necessarily have unlimited sympathy for Lloyd's members, it is entirely right that where they lose money through the clear failures of the supervisory authority they ought to be able to turn to that authority for recompense if — here I associate myself with the telling point made by the hon. Member for Wolverhampton, South-West (Mr. Budgen) — they can make their case in the court. That is not as easy as it seems. It is difficult to think of individuals who have been able successfully to sue bodies of that nature for regulatory failures. That must tell us something about the balance of power and of probability in such circumstances.

Mr. Butterfill: Mention has been made of the PCW names at Lloyd's and it is suggested that it is proven that the case resulted because of a failure by the regulator. I believe that it is far from proven. The information that I have heard suggests that it was not due to a failure by the regulator but because the syndicates of which they were a part took extremely ill-advised underwriting business. It was high-risk business, no doubt for high rewards. It seems that an attempt is being made to evade responsibilities in the underwriting of that business.

Mr. Gould: We could have a long debate about the rights and wrongs of the PCW affair. I believe that investors lost money through fraud and theft and then through ill-advised business, undertaken to maximise premium income to cover the tracks of those criminals. All of that took place under a supervisory regime for which Lloyd's was responsible. But that is not the point. The point is whether we should enact, as we did in the case of Lloyd's, a provision which prevents PCW investors from resolving in the courts the debate which the hon. Gentleman and I have just had. Should we say that the PCW investors should be precluded from having their day in court to establish their case?

Mr. Budgen: Can the hon. Gentleman confirm to those outside that if a plaintiff fails against a regulatory authority the cost of bringing the proceedings is likely to be large and, having failed, he will have to bear not only his own but the defendant's costs?

Mr. Gould: The point is well taken. There is another explanation, one assumes, for the relative rarity of such actions.
One could elaborate the case at length, but I do not propose to do that. I want to raise the general principle at the heart of the issue. If self-regulating organisations are to be made immune from suit, from whatever quarter, the nature of the self-regulation with which we have imagined that we are dealing is misunderstood. We have imagined that the self-regulating organisations are an instrument for exercising statutory powers and that they exist because they have particular expertise and the ability to monitor activities day by day.
That type of self-regulation is suddenly revealed by such a measure not to exist. Under the provision we are confronted with self-regulation on the bad old model where self-regulation is undertaken by groups or professional cliques whose real purpose is to defend the interests of their own members against the outside public. Such a provision will make it impossible to break down the wall built around those organisations, which will be impregnable by the outside investor.
If we were to enact the provision, the self-regulation which we have hitherto been prepared to support would become a much different proposition. We could not easily tolerate a City regulated by bodies against which there was no possibility of sanction by those who would lose as a consequence of their failures.
In drawing the line between actions brought by members, or the regulators, and actions brought by investors and members of the public, I am not excluding the possibility that very large investors with very deep pockets might sue self-regulating organisations. That was a possibility which a few months ago the Minister was prepared to contemplate.
The difficulty is that the Minister must now make a choice. Does he provide effective investor protection for the small investor, or is he so mesmerised by the possibility of large investors threatening self-regulating organisations that he is prepared to throw investor protection out of the window? That is the consequence of the new clause.
The investor who wishes to sue the self-regulating organisation will limit his argument in such a way as not to threaten the continued viability of that self-regulating organisation. That is not achieved by any of the proposed amendments. The Minister should be able to come up with a solution which would provide a balance between protecting the self-regulating organisations and protecting the interests of the investor. If he cannot do that, the notion of using self-regulating organisations to carry out the purpose must be re-examined.
If the Minister believes that self-regulating organisations need to be protected against actions for damages by anybody, one must conclude that self-regulating organisations are not the appropriate instrument for carrying out that function. That is the essential question which must be answered. That is why we believe that the Minister's conversion, while welcome to the extent that we had urged it upon him, has gone too far. The Minister has not adequately explained why he has so demonstrably changed his position.

Mr. Bermingham: Does my hon. Friend agree that, if the Minister has been converted — I use the word advisedly because I suspect that he does not know where the road from Jerusalem to Damascus really is—could it be because of his fear of the multinational financial institutions? If that is so, perhaps the regulation should be by Government bodies rather than private bodies.

Mr. Gould: My hon. Friend is right. That is the conclusion that I arrived at. If the contest between the self-regulating organisations and the large City investors, who in most cases will be members, is so unequal, it is hard to see how the self-regulating organisations can bear the weight of the burden.

Mr. Budgen: I am not sure that the hon. Member for Dagenham (Mr. Gould) has persuaded me that it would be right to grant immunity to the regulated. It is difficult to draw a line between the regulated—particularly the big regulated—and those who are also investors. That is particularly difficult since we now have a multiplicity of capacities in the City. It is difficult to see, when an organisation might be a clearing bank, a stockbroker and a stock jobber, how one can precisely describe it as a big investor or a person regulated by the authority.
We are not really talking about that tonight. We are talking about whether the Government are wise to grant blanket immunity to all persons who have to deal with the self-regulatory authority. I am grateful to my hon. and learned Friend for the courteous way in which he gave way to me as he expounded his only two reasons for saying that his previous view had changed.
I agree with my hon. and learned Friend that the presumption should be against immunity. I shall not repeat the two questions that I put to him, although I did not receive a satisfactory answer. I therefore conclude that the Government have been very unwise in general and

political terms in granting this blanket immunity to a self-regulatory authority. They allowed Lloyd's blanket immunity through the Lloyd's Act. Plenty of hon. Members say in the Lobbies that they wished that the Government had not granted that blanket immunity because it has not been used as a means of making Lloyd's a straighter or more efficient organisation. It is seen by many to be more of a shield than a sword.
9 pm
It must be remembered that a special privilege was granted to the stock exchange in 1983. I was opposed to the Parkinson-Goodison deal because I thought it wrong to take pending litigation out of the ambit of the courts. The restrictive practices of the stock exchange should have been considered by the Restrictive Practices Court. Plenty of people share that view. Perhaps I am wrong, but it appears politically unwise to grant to the stock exchange another great privilege— [Interruption.]. I have failed to satisfy my right hon. and hon. Friends that it is unwise to grant one's friends these great privileges.
I wish to direct a few words towards the stock exchange. In our society there are two main ways to ventilate a grievance. If one has a disagreement with a state-run concern, there is a political method to ventilate that grievance. For the sake of argument, I might say that I do not like the way in which the Bank of England is controlled by the Government, I will never support Mr. Nigel Lawson or vote Tory again, and that Mr. Lawson should resign. That is perfectly reasonable and everyone understands the way in which political grievance can be ventilated. Equally, everyone understands that a private individual has a right to ventilate his grievance through the courts. However, a self-regulatory body that is not state-controlled and cannot be sued in the courts is, in the last resort, irresponsible.

Mr. Butterfill: Is my hon. Friend aware that on 3 June the stock exchange announced its intention to appoint an ombudsman to represent the interests of investors as against the stock exchange council?

Mr. Budgen: Ombudsmen make grave recommendations, but they are not in any way binding. An ombudsman is not a satisfactory alternative to the right to sue through the courts.
Sir Nicholas Goodison, who is no doubt congratulating himself on his great triumph, has in fact acquired for himself and his organisation a most short-sighted triumph. There will be many changes in the securities industry in the next few years. Many wise people who know a great deal about the industry— I am not wise, nor do I know a great deal about the industry —say that over-capacity is building up, and they may be right.
I do not know about the way in which prices of stocks and shares go up and down, but there are those who say that eventually there will be a bear market. There are also those who say that the system of Chinese walls will not always work. A combination of over-capacity and a bear market, with opportunities for malpractice, means that a few corners may be cut in future. When Granny Smith finds that she has no opportunity either to take the political course or to sue to ventilate her grievance—it may well be that there is not a Conservative Government at that time — she may say that there is a need for further legislation. She will say, "That wicked old Tory Government in 1986 passed legislation which was plainly to the advantage of their friends and was not fair to me."


The danger is that the splendid settlement will be unpicked. When it is unpicked, not only that part of it but the remainder will be unpicked. That will be to the disadvantage of the stock exchange. Certain people may drink their second magnum tonight and congratulate themselves on such a great triumph, but I hope that it does not look too bad for them in five, six or 10 years, when Granny Smith goes to a Member's surgery and complains that she has no means of ventilating her grievance.

Mr. Bruce Millan: I agree with the hon. Member for Wolverhampton, South-West (Mr. Budgen) that if we are to give special legal privileges of immunity to anybody, there must be good grounds of public policy for doing so. It cannot be given simply as a protection for the body concerned. As I understood the argument in Committee— I was not a member of the Committee— there were good grounds of public policy for giving at least a degree of immunity to self-regulating organisations, because otherwise they might be inhibited, as the Minister said earlier, from carrying out the functions of investor protection placed on them by the legislation. The argument provides a strong case for legal immunity. I believe that the extent of the immunity is a separate matter, as my hon. Friend the Member for Dagenham (Mr. Gould) has argued. My amendment (c) applies the same arguments to recognised professional bodies as have been applied in the Minister's new clause regarding self-regulating organisations.
As a chartered accountant and a member of the Institute of Chartered Accountants of Scotland to which I am parliamentary adviser. I have an interest in the matter. Listening to the Minister's arguments for his new clause, I found it difficult to accept the arguments that he put up a little later about why recognised professional bodies should not have the same degree of immunity—whatever it is that Parliament eventually decides the degree of immunity should be. After all, under the Bill, those bodies are to be subject to a regime that is intended to give protection to investors equivalent to that which they would obtain through anything done by an authorised person in a self-regulating organisation. The rules and monitoring arrangements to provide that are to be as stringent, detailed and as subject to supervision as those that apply in respect of self-regulating organisations. Therefore, recognised professional bodies will be placed in almost exactly the same position as self-regulating organisations. It is difficult, on the face of it, to understand why immunity is to be granted to one kind of organisation but similar immunity is not to be granted to another kind of organisation—a recognised professional body.
The Minister used two arguments against that proposition. He said that in the case of professional recognised bodies — I take the chartered accountants' institutes as an example— regulation would be only a small part of their activities, and it could be anomalous if immunity were granted for a small part of their activities when the main part of their activities was not similarly protected by immunity.
The recognised professional bodies are having particular and new obligations placed on them by the legislation, assuming that they will apply for recognition. It is a matter of choice. They may not apply for recognition if they do not feel that they can take on the obligation. If they apply for recognition, they will take on an entirely different range of responsibilities. For example, the

institutes of chartered accountants do not actively monitor their members' activities or have a legal obligation to do so. Of course, they are responsible for discipline, and so on. Under this legislation, they will take on the additional responsibility of monitoring their members' activities with respect to investment.
Although this aspect may be only a small part of the activities of these professional bodies, it is a new and special responsibility. It is a legal obligation, not a voluntary role. By applying for recognition, a body automatically takes on those responsibilities. The argument that these bodies are not given immunity for the major part of their activities and that, therefore, it would be anomalous to give them immunity for the minor part of their activities does not bear examination.
It has been argued also that a member of a recognised professional body who has been authorised will be recognised only because certain activities are incidental to his main activity as an ordinary professional person. That is true. The Bill does not lay down a definition of what is incidental. There have been considerable discussions on this point, and I am not arguing that there should be a specific definition in the Bill. A practitioner may be involved in activities that are incidental to his main activities, but that does not necessarily mean that those incidental activities do not involve considerable sums. He may he vulnerable to legal action even though his activities are incidental. Of course, if the activities were not incidental, they would have to be regulated in a way other than through the recognised professional body. That is not a good argument for distinguishing between a self-regulating organisation and a recognised professional body.

Mr. Bermingham: I put this point to the Under-Secretary of State but he did not seem to understand it. Does my right hon. Friend, with his vast professional experience, accept that often the chartered accountant who is the liquidator or receiver in a company liquidation can be involved in what may appear, on the face of it, to be a small transaction but be liable for vast sums?

Mr. Millan: My hon. Friend has made that point in a rather different context. Because a person is involved in an activity that is only a small part of his general professional responsibility it does not mean that he is not vulnerable to being liable for large sums. That point has been made. I think that the Under-Secretary of State understands that the professional bodies are agitated about this matter, and I ask him to consider it again.
I do not want to go at great length into how far immunity should extend. There is a distinction between immunity from action by a recognised professional body's members or someone authorised' by it and immunity from action by a member of the public — for example. an aggrieved investor. From the point of view of the recognised professional bodies or the self-regulating organisations, liability for large sums in damages may arise from the suit of an aggrieved investor rather than art aggrieved authorised member or a member who has been refused authorisation. Vulnerability to liability for large sums of damages may well be caused by bodies outside rather than within an SRO. Amendment (b) restricts immunity to a person,
whether authorised or not, whom the organisation is authorised by this Act to investigate or supervise".


In some circumstances, that may be a fairly limited immunity. An aggrieved investor may get beyond the authorised person, with whom his grievance basically rests, to the authorising body which is responsible for monitoring the activities of that person. There is a real dilemma but I do not necessarily want to take a firm view on that matter. All that I am saying is that, whatever the ultimate form or shape of the Bill or the new clause, I think that there are strong grounds, in terms of public policy, for treating self-regulating organisations and recognised professional bodies in exactly the same way.

Mr. Butterfill: My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) referred to Granny Smith and her predicament and her inability to sue. My constituency probably contains more hypothetical Granny Smiths than most others. The difficulty that the Granny Smiths in my constituency encounter is that the law does not seem to do for them what my hon. Friend the Member for Wolverhampton, South-West thinks that it might. They come to my advice centre and say that there is one law for the rich because they can afford it, there is another law for the poor because they can get legal aid, but there is no law for the small people in between who cannot get legal aid because they have a little bit of money. They are precisely the people who will be the investors in the stock exchange and who will not he able to afford the litigation.
I am touched by the faith my hon. Friend the Member for Wolverhampton, South-West has for the legal process and the courts. It is not a faith that I have heard him express quite so vividly on previous occasions. Nevertheless, it is a touching thought. However, I do not think that it is something which Granny Smith will want to rely on. I think that she would much rather rely upon an ombudsman appointed by the stock exchange especially if, unlike the ombudsman we seem to have created in this place, he actually has some teeth and may get redress for the complainant investor.
The hon. Member for Dagenham (Mr. Gould) referred to the views I expressed in Committee. I am sure that if he refers to column 176—I have just refreshed my memory on that, he will see that — my view arose from the experience that I and other Members of the Committee had as members of professional bodies. I suggested that since those of us who were members of professional bodies had not seen the need for them to have this type of immunity I did not really see, extrapolating from that, why the immunity should be extended to the stock exchange or any of the other self-regulating organisations we are setting up under the Bill.
I must tell the hon. Member for Dagenham that I have taken further advice on this matter. However, I have not undergone a conversion in a blinding flash along the road to Damascus. I have trodden the road to Damascus but it was not there that the inspiration came to me. I have considered the representations, as my hon. and learned Friend the Parliamentary Under-Secretary will have done, that have been made to me by those concerned in these matters and those who have much more experience than I have. In an earlier intervention I referred to the position of ISRO, which is dealing with an international money market of billions of dollars. It would be completely

impossible for regulators of that type to operate if, in giving a ruling, they were likely to be liable to be sued for damages for billions of dollars. A bankrupt regulator will not be any good to any of us and, therefore, it is essential that we provide the immunity that is suggested in the new clause.

Mr. Ashdown: I thought that the hon. Member for Dagenham (Mr. Gould) put it rather well when he said that the House was engaged in a rather interesting minuet. We are required to do so in considering the new clause. The hon. Gentleman and I and other Opposition Members called for immunity for SROs and the Minister's change of heart is welcome, but that welcome must be tempered by the fact that he has gone further than the consensus that we reached, such as it was, in Committee, and has done so for some fairly curious reasons. As the hon. Member for Dagenham said, and as the hon. Member and for Wolverhampton, South-West (Mr. Budgen) said in an interesting, amusing and telling speech, that makes this issue one of considerable principle.
It is right that we should remind ourselves of the terms in which the Minister, with a good deal of enthusiasm and no small despatch, advanced arguments that went against the position that he has now adopted. He told us in Committee, in the face of the arguments that he has presented this evening, that he was against the immunity that is now proposed. He told us that it would be wrong to allow a City institution to operate above the normal workings of the law. He did not use precisely those words but that was the purport of his contention. He declared elegantly and with some force that the immunity for which we asked would go against the trend of English law over the past 50 years. He explained that there had been a move in the opposite direction and added that doctors, lawyers and tour operators had all been made liable for damages for incorrect decisions. We are entitled to investigate why it is that the Minister has committed such an extraordinary volte face. It would seem that the hon. and learned Gentleman is stretching our credibility a little too far by asking us seriously to believe that the arguments which were so powerfully advanced in Committee caused him to change his mind.
If the Minister's change of mind was caused by the arguments that were presented in Committee and, to a certain extent, by some "practical facts", as the Financial Times put it, presented to him outside the House, I might be better disposed towards him, but I suggest that there is no evidence that that is what happened. The Minister is fast enough on his feet and has a brain that works quickly enough to accommodate and show some serious consideration of the arguments advanced in Committee, but instead he dismissed them with considerable despatch.

Mr. Ron Davies: And with contempt.

Mr. Ashdown: I would not go that far. It was a good-natured Committee and I did not see too much contempt displayed. I merely say that the Minister dismissed with enthusiasm the arguments in favour of immunity.
What has happened? We know that a letter was sent to the Minister on 16 April 1986 from the six nascent SROs—AFBD, IMRO, ISRO, LAUTRO, NASDIM and the stock exchange—which contained a thinly veiled threat. They wrote:
Failing to grant immunity from these liabilities in the Bill will discourage the formation"—
a euphemistic approach—


of SROs in the first instance, as well as compromise their operation if they do decide to seek recognition.
That was an approach that was articulated more clearly in an article that appeared in the Financial Times. The commentary in the Financial Times that appeared shortly afterwards was rather more blunt but it was accurate enough. The article stated:
The six nascent SROs issued a joint statement saying that unless they were granted the same immunity from negligent actions as their immediate overseer, the Securities and Investments Board, they would not invite members to join or to serve as directors and officers.
There it is. There is the armlock or the half-Nelson. That is why the Minister has changed his mind. In future, as the hon. Member for Wolverhampton. South-West said, when Granny Smith wants to know why it is that she has no recourse and no possibility, neither political nor through the courts, of getting back at wrong decisions, it will be said with some force that the Government changed their mind because some of their friends and some of their paymasters in the City required them so to do. I say that as someone who has not advanced that argument with the strength with which others have deployed it previously. That, however, will be the judgment that history and hindsight will place on the Minister's decision.

Mr. Campbell-Savours: I find the comments of the hon. Member for Yeovil (Mr. Ashdown) quite remarkable. It is not my place to defend the Minister, but I have a letter from Allen and Overy, solicitors. The organisations took legal advice, and all the matters contained in the letter from the stock exchange are taken directly from the correspondence. If the hon. Member for Yeovil had simply telephoned the solicitors, he would have found the case clearly set out in favour of immunity. The solicitors were commenting only on the relevance of a legal judgment as it affected their position. They were perfectly entitled to obtain the legal judgment and put it to the Minister.

Mr. Ashdown: It is strange for the hon. Gentleman to place such remarkable weight on the view of lawyers as being the final word in this matter. I am aware that the Committee was overburdened with lawyers and that was difficult for us to cope with. However, we must make a judgment on this. It is possible for anyone to seek an opinion from a lawyer which will meet the desired requirement. I am not against the concept of immunity and I argued for it within certain limited constraints that I will refer shortly, and relate strongly, to the amendment tabled by the hon. Member for Dagenham (Mr. Gould).
It is perfectly clear that the half-Nelson which the Minister was put in by his friends in the stock exchange and elsewhere caused this remarkable change of mind. It is even more remarkable, because elsewhere in the Bill and throughout the Committee the Minister time and time again placed what many of us regarded as a touching faith in the operation of the courts when it came to decide on such matters as, for example, the meaning of the word "significant" when assessing the proportion of a firms general business which involves investment. The Minister is granting an immunity not just to the members and those who are regulators on the matter—

Mr. Budgen: Will the hon. Gentleman give way?

Mr. Ashdown: I will give way to the hon. Gentleman in a moment if he will just be patient. The Minister is

granting an immunity not just to the members and those who are regulators, but is going further than what was agreed in Committee on this matter.

Mr. Budgen: Does the hon. Gentleman agree that the way that the stock exchange suggests that it is accepting self-regulation, as it were to do the Government a favour, is rather odd? The exchange wants self-regulation because it believes that the more skilled and informal way of regulating the market will be a selling point to foreign investors. However, having desperately wanted this self-regulation, sadly it is not prepared to accept its consequences.

Mr. Ashdown: The hon. Gentleman has made a powerful point. I am in favour of a degree of immunity for reasons advanced in Committee. There are important reasons why there should be freedom of operation in respect of regulated numbers. However, by extending that even to immunity from damage claims by investors, he is seen to have moved much further than he agreed might be appropriate in Committee and in a direction which fundamentally extends the powers of self-regulation to levels that most hon. Members would disagree with.
There is anxiety about self-regulation as a basic principle, although I agree with that principle. That principle is worrying enough but to give the self-regulators total immunity from anyone in relation to damages levied against them, not only to those who are members of the regulators and to investors, goes far beyond what is acceptable.

Mr. Butterfill: Does the hon. Gentleman accept that when the big bang occurs the investors and members may be the same people? Is that not the problem?

Mr. Ashdown: If the investors and the members are the same people, granting immunity to the members should be sufficient. I would happily go along with such a proposal.
The Minister has moved for the wrong reasons. He has moved not because of democracy and argument in Committee but because he has been put in a half-Nelson. The second reason for the Minister's shift is even more worrying. The City has caused a fundamental change in his mind by simply saying that it will not operate a set of regulations which is enshrined in an Act of Parliament. That bodes very ill for the future of self-regulation as one of the determining factors of the success of self-regulation is the City's attitude. That is a matter of not inconsiderable weight.
9.30 pm
As for what the Minister should have done, I cannot add significantly to what the hon. Member for Dagenham said. To offer immunity to those who are regulated is appropriate, but to offer it to those who are investors as well is dangerous. If the Minister is saying that the power of investors in terms of the money that they can generate is so great as to cause him considerable worry in this matter, it might be right for him to recognise that there should be a state organisation. That is not my view, but. if the Minister believes that the power of investors will be so great as to undermine his Bill, giving a private body such immunity is going too far by a long way.
This is an issue of fundamental principle. I am in favour of immunity for the regulated, but we should not grant immunity from damages levied against the SROs in respect of those who invest. To do that would be significantly to


undermine the Bill and to extend the power and influence of SROs to an unacceptable extent. We would also diminish the safeguards for investors.

Mr. Tim Smith: This has been a bizarre little debate. It has something in common with "Through the Looking Glass". My hon. and learned Friend the Minister has changed his mind and, ever since announcing it, he has been attacked by the very people who wanted him to change his mind. I refer not to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) but to those who made the mistake of speaking in the earlier debate on this subject.

Mr. Gould: The hon. Gentleman cannot be allowed to get away with that statement. We approve of the Minister changing his mind 100 per cent. —it is the 200 per cent. which makes things difficult for us.

Mr. Smith: It is partly that and partly the suggestion that he has not changed his mind on the merits of the argument but has somehow been got at. It has been suggested that the stock exchange got at him.
We should be clear who is calling the shots. No fewer than 49 out of the 50 leading members of the stock exchange are owned by members of ISRO. The stock exchange will soon be a subsidiary of ISRO, so if anybody is calling the shots it is ISRO and the international securities dealers. It is important to listen to what they have to say. Everybody who wanted a change agreed that there should be immunity for members.
It is easy to exaggerate the difficulties of view and their consequences, but we are considering whether there should be immunity for investors. The hon. Member for Yeovil (Mr. Ashdown) completely misunderstood the point made by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) about investors and members being the same people. They will not be the same people on the same occasion. When we speak about large investors, we speak about the people who are members of ISRO and other bodies with substantial clout. My hon. and learned Friend might perhaps consider whether we can draw a distinction between the very large operators, who are probably quite capable of looking after themselves, and the Granny Smiths to whom my hon. Friend the Member for Wolverhampton, South-West referred. Such a distinction exists because the Government have tabled an amendment to schedule 6 which makes it.
When I saw the Government's proposal, I was a little surprised in view of what my hon. and learned Friend said previously. I see the force of his arguments, however, and that the professional investor does not need such protection. The origin of the Bill is concern for small investors. Perhaps we should see whether we cannot deal with the matter in that way.
My amendment (a) is very similar to amendment (c) tabled by the right hon. Member for Glasgow, Govan (Mr. Millan). I subscribe to all the arguments put forward by the right hon. Gentleman in favour of extending the clause to include recognised professional bodies.

Mr. Bermingham: I do not propose to detain the House for long. But it is incredible that the Minister, who comes from a learned profession, should seek to negate the actions of the courts in this matter. I do not know whether

it was the blinding light on the road to Damascus again, pressure from the City again, or pressure again on other hon. Members from the little chaps across the coffee table, which has led to the claim that there is a difference between the stock exchange and other professional bodies. On occasion, the Law Society has been the subject of actions. The Glanville Davies case is a classic example. In that instance, the Law Society found that it was in the wrong. Other professional bodies, such as the accountancy profession, have been the subject of actions. But those actions are always undertaken by small people.
Apparently, however, we are to exempt the new SROs and the Securities and Investments Board from liability for their actions. From the Minister's argument — I hope that he will pay me the courtesy of listening to this point — it seems that these bodies will be gagged by the actions of large American and other institutional investors. Apparently they will issue a series of gagging writs, as a result of which no actions will be taken. If the House acknowledges that there are powerful enough bodies, in the City or elsewhere, to gag other bodies set up by the House simply by issuing writs, it is a very weak and namby-pamby place. After all, that has never been the position.
If someone said today that all professional bodies were to cease functioning simply because rich, powerful and influential bodies could issue writs to threaten them and subdue them into submission, I trust that the House would have the courage to act. On Second Reading I was very much against — as I always have been — the SIB or independent concept of self-regulation. In the light of the Minister's remarks, I am confirmed in my belief that we cannot trust the City to regulate itself. That is what worries me.
I was always in favour of the American solution, with the Securities and Exchange Commission or a Government body. I was in favour of a state body regulating the whole investment industry. I accept, as I believe the hon. Member for Beaconsfield (Mr. Smith) mentioned, that there are SROs in New York, but they are in turn subject to other controlling bodies.
I am prepared to concede limited immunity between those companies or businesses which are to be regulated and the regulator. I understand the argument that if bodies do not like how they are being regulated they, as a collective group, can change the rules on how they are run; but I strongly object to the negation of an individual's rights. That individual could be a bank or the Granny Smith referred to by the hon. Member for Wolverhampton, South-West (Mr. Budgen). Indeed, for once I entirely agree with his remarks. He hit the nail on the head.
I strongly object to the man in the street being told that he has no right of redress. In its own way that is a negation of democracy. One cannot have a body that is answerable to nobody. I concede immediately that such bodies would be by way of declaratory judgments, and so on, answerable, say, through the divisional court. But that does not provide the necessary remedy to the ordinary person.
Perhaps the Minister would like to travel again on the road from Jerusalem to Damascus. I am sure that the House will understand the time that it takes. Perhaps once again he could hope that the light would hit him and this time lead him to understand that he has no need to be


frightened of the large multinationals. Britain and our courts are big enough to protect us against the gagging and conspiratorial tactics which he so fears from them.

Mr. Camphell-Savours: They are not.

Mr. Bermingham: My hon. Friend says that the courts are not strong enough. He knows not what he says. Indeed. the courts are strong enough and they will not accept that sort of behaviour, because it is in itself a conspiracy to pervert.
I say to the Minister: think again. The House has the power to set up regulations in a way that meets the needs of all. To deny the individual the right of redress and to say that if we do not have this blanket immunity the City, which is being given the right to regulate itself, will not play really is the conduct of a spoiled brat. Let him have the courage to say to the City, "Look, we believe that the individual has rights. If you want self-regulation, have the courage to do it, but in a form which makes you answerable to the people you seek to regulate."

Mr. Nelson: Some immaculate points of principle have been put forward this evening by hon. Members. Indeed, some of them have almost waxed biblical in their defence of people's right to bring suits. However, we must decide whether we want the legislation to work, whether we want the legislation well thought out, given a Second Reading and enjoying a large measure of support on both sides of the House. If we do, we must ensure that the bodies which are charged with this responsibility have the incentive, the means and the ability to carry it through.
Those of us—I am one of them—who advance the case for extending immunity to SROs do not do so because in some idle way we think that it would be a useful immunity that would help the running of the City. We do not do so because we have paymasters or vested interests. We do so because, as we have clearly said, we are interested in investor protection. It is because we want to protect investors that we want SROs to do their job and it is because we want SROs to do their job that we want to ensure that they have the membership, the effectiveness and the immunity so to do.
I find it odd that in the debate so far there has been no mention of or objection to the immunity which the SIB enjoys. The SIB is given complete immunity from suit by SROs, by members of SROs and by the investing public.

Mr. Budgen: The SIB is far less of a self-regulatory authority and far more of a state organised authority.

Mr. Nelson: That goes to the heart of a debate that we shall no doubt have later on Report, on which the Standing Committee spent no little time.
The fact of the matter is, as is proposed, that the SIB or the designated agency will remain a private sector body. It is given, and I welcome it, substantial powers of regulation and power over SROs, but enjoys— a fact that nobody has complained about—total immunity.
Some hon. Members have complained—again, it is a compelling and almost immaculate argument—that not to be in favour of extending immunity to self-regulating organisations because they are private sector as opposed to governmental is either a case for not extending that immunity or a case for making the system statutory. That was the point made by the hon. Member for Yeovil (Mr. Ashdown).
However, making the system statutory, even if it were practically possible, making not only the SIB but every

SRO, including the stock exchange, a statutory body, would not of itself mean that those SROs could not be challenged in court or in law. They would only not be challenged if, in the legislation giving them statutory identity, an immunity was extended to them as well. Exactly the same point exists whether or not the SROs and the SIB are statutory or private. Therefore, those arguments are wholly defective.
We must consider whether we want the legislation to work and whether the proper presumption against the. extension of immunity to any body or organisation should be waived or limited to this extent because we think a greater good will be served. I share the view to some extent that regulators should be liable and responsible for their actions, and that there should be a presumption against an extension of immunity as a generality. I am fearful— have expressed this to self-regulating organisations and in Committee — that SROs may sometimes act in a capricious or negligent way, possibly in the interests of the firms for which individual members of SROs work, rather than in the interests of the public or the market as a whole.
9.45 pm
I am well persuaded, as I believe my hon. and learned Friend the Minister was, that the practical reality is that. SROs will be blockaded or rendered impotent by the threat of suits or damages of an order substantially greater than the hon. Member for St. Helens, South (Mr. Bermingham) imagines. [Interruption] I am making a point and I am open to challenge.
The resources available to the legal departments of some investment banks, which will be both members of ISRO and investors on the international securities market, not only are prodigious but will be deployed, as the investment banks have said, because when acting on behalf of various substantial investment interests one may be culpable if one does not fling bricks in every direction and overstate the damages that can be claimed. If the hon. Gentleman honestly believes that that will not happen, he should consider what has happened in the United States, where the volume and size of writs has been enormous.

Mr. Bermingham: Does the hon. Gentleman not agree that to say that companies will use inflated writ procedure by in-house lawyers brings upon them the disgraceful allegation that they would do so and upon the judicial system the equally disgraceful allegation that it would tolerate such conduct in the English courts?

Mr. Nelson: Of course companies would, and the courts would have to tolerate it. It happens in the United States. The sums involved are enormous compared with the cost of taking a case to court, which may be substantial in absolute terms but which is nothing when one considers the turnover of some individual investment houses which is now over ․1 trillion.

Mr. Budgen: My hon. Friend should also mention contingency fees, which make a difference between here and New York.

Mr. Nelson: I recognise that., and I concede the point to the extent that there are different practices and attitudes in this market. But let us not underestimate the extent to which these suits will be brought.
I was well persuaded by the chairmen of the SROs, members of SRO steering committees and individual member firms that they will not get lay or professional


members on those SROs. Ian Steer of ISRO, to whom I have spoken, Charles McVeigh, a member of the standing committee, and Salomon Brothers International, all of whom are involved in establishing and running this organisation and are investors and self-regulators in the market, say that there is no way that they will put themselves forward and have the opportunity cost of highly paid executives' time to make themselves vulnerable to the sort of law suits which they believe will undoubtedly be brought, if this sort of immunity is not extended.
For those reasons, my hon. and learned Friend was absolutely right. Although, with the benefit of hindsight, the announcement could have been made more sensitively, the judgment is correct and deserves support.
Regarding professional bodies, it is important that we draw a differentiation between incidental business and mainstream business. The arguments would be different if recognised professional bodies were to preside over member firms whose investment activities extended well beyond the sort of incidental business for which they will be authorised. Where they engage in such business, it will have to be authorised, and where they are authorised, they will be a member of an SRO in the usual course of events. For all these reasons, my hon. and learned Friend deserves far greater support than many have so far given him.

Mr. Campbell-Savours: In Committee I took a great interest in the subject of immunity, and the Minister has been wise to pursue the course that he has adopted. However, he would do well to note the comments of my hon. Friend the Member for Dagenham (Mr. Gould). At the beginning of the debate I said that I had an open mind on this matter.

Mr. Ashdown: Oh, yes?

Mr. Campbell-Savours: I am being objective in the way that the Liberals tell the public they are always objective. It is a pity that they cannot apply their objectivity in the Chamber, where people such as I do so. I have been thoroughly objective. In Committee it was remarkable that at every stage of our 22 sittings we sought a balanced judgment. We have so many amendments because we went about our business in an objective way.

Mr. Ashdown: Will the hon. Gentleman give way?

Mr. Campbell-Savours: I want to watch a football match at 11 o'clock, and I intend to do so, so I shall proceed with the important business.
My hon. Friend the Member for Dagenham was right in his comments on the need for a special look at the position of investors and that one has to weigh up these matters carefully and have a balanced judgment about them. As I understand it, he was saying that if, through concern about the power of multinational corporations and large investors, we end up by applying a system that does not fully protect the small investors, we question the whole principle of the self-regulatory organisation. 11' we do that, we do great damage to the principle of self-regulation.
As far as I can see, the only way around this is to pursue the proposition put forward by the hon. Member for Beaconsfield (Mr. Smith), who also was most reasonable. He suggested that there would be a case to answer and asked whether we could find some way of drawing a

distinction between the large and the small investors. Over the next few weeks the Minister might examine these matters and, before the Bill is dealt with in the other place, produce a solution. I do not know what it might be, but it could be some form of ceiling on immunity. We must find a way round this problem. It would be wrong to be so near to perfection, but yet slightly undermine a system that would work.

Mr. Cash: I am extremely disappointed with these provisions. In Committee I spoke about fit and proper persons and asked whether the Bill, which is leading up to the big bang, would lead either to a galaxy or a black hole. That has much to do with the manner in which the SROs operate. The new clause will go through. I am sure that if there is a Division it will go in the direction that the Government want, but that does not detract from my main point. The immunity that is to be extended to the SROs in these circumstances will lead to a serious situation, as the Granny Smiths of this world will learn to their cost in due course.
Having said that, there is a broader issue that must be addressed — whether the self-regulatory organisations would be prepared to operate. It is clear on the balance of the argument that they are not prepared to operate unless this provision is put through. It is more important that the Bill should succeed. I have expressed the warning, and I stand by it. I hope that the Government will use the powers in new clause 6 to rectify the matter in due course if things go wrong.

Mr. Howard: I agree so much with the eloquent remarks of my hon. Friend the Member for Chichester (Mr. Nelson) that I can be brief in replying to the debate.
Perhaps the most remarkable feature of the debate has been the eagerness of Opposition Members, led by the hon. Member for Dagenham (Mr. Gould), who was joined somewhat eccentrically by the hon. Member for Yeovil (Mr. Ashdown), to take credit for the change of mind that I had in response to the arguments that they put forward in Committee. I have fully explained that change of mind.

Mr. Gould: I am delighted to take credit, not only for the conversion of the Minister, but for the conversion of every Conservative Member on the Standing Committee who voted on the issue when we pressed on the Minister the matter of immunity for self-regulating organisations. We marvel, not only at the scope of that conversion in terms of the numbers of Government Members, but at the area which the conversion covers. The Minister is so enthusiastic in support of the arguments that we advanced that he is now taking the matter beyond the bounds of what is reasonable.

Mr. Howard: The hon. Member for Dagenham should not be surprised at the fact that when the Government undertake to rethink matters we do so in a thorough way. Having done that, we follow our thoughts through to their logical conclusion.
My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) had the courtesy to tell me today that he was not in favour of the proposals contained in the new clause. I knew that he would put forward the views that I expressed in Committee with a great deal more pungency than I could ever hope to aspire to. I have admired the intellectual honesty of my hon. Friend for over a quarter of a century, and I hope that he will


continue to reflect upon these matters in the same way as I have reflected upon them, and that in due course he will see the force of the arguments that I have presented to the House. I am sure that when that moment arrives he will put forward those views with the same pungency as he expressed his views in this debate.
Some hon. Members have spoken about the relatively small investor. It is perhaps characteristic of the changed positions that we have adopted in the course of the debate that Aunt Agatha, who was such a faithful companion in the Standing Committee, has been transformed into Granny Smith for the purposes of this discussion.
The small investor will be protected. The investor will still be able to pursue investment businesses and will have the advantage of the compensation arrangements that will be made available if those investment businesses, for some reason, are not able to meet claims for compensation.
As I say, the small investor will be protected, and that is important. Such protection is at the heart of these matters, and I attach great importance to it. That has a lot to do with the reason why, after giving a great deal of thought to the possibility of a distinction, which was put forward by my hon. Friend the Member for Beaconsfield (Mr. Smith), between professional investors and small scale investors, I came to the conclusion that it would be extraordinarily difficult to arrive at such a distinction, because of the difficulties of defining a professional investor in that context. It is also unnecessary to do so, because of the protection which in any case exists for the benefit of the small investor.
I have already advanced my argument about the professional investor. The right hon. Member for Glasgow, Govan (Mr. Milian) was right to stress the importance of the definition of incidental investors. That definition will, of course, be a matter for the professional bodies themselves. It will be in their power to limit the kind of investment which their members will be allowed to undertake and which they think they will be able to regulate effectively without the benefit of immunity.
The hon. Member for Dagenham was right when he said that the path we have chosen is difficult. There are no easy decisions in this area. However, he was wrong to suggest that we were in any way sacrificing investor protection. It is because we wish to ensure that that protection is effective that I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time.

Amendment proposed to the new clause: (b), in subsection (1), after 'damages', insert
'at the suit of any member of the self-regulating organisation or of any person, whether authorised or not, whom the organisation is authorised by this Act to investigate or supervise'.—[Mr. Gould.]

Question put, That the amendment be made:—

The House divided: Ayes 111, Noes 202.

Division No. 220]
[10 pm


AYES


Adams, Allen (Paisley N)
Bell, Stuart


Alton, David
Benn, Rt Hon Tony


Archer, Rt Hon Peter
Bennett, A. (Dent'n &amp; Red'sh)


Ashdown, Paddy
Bermingham, Gerald


Ashton, Joe
Bidwell, Sydney


Atkinson, N. (Tottenham)
Brown, N. (N'c'tle-u-Tyne E)


Banks, Tony (Newham NW)
Bruce, Malcolm


Barron, Kevin
Callaghan, Jim (Heyw'd &amp; M)


Beckett, Mrs Margaret
Campbell, Ian





Campbell-Savours, Dale
Maclennan, Robert


Carter-Jones, Lewis
McNamara, Kevin


Clark, Dr David (S Shields)
McWilliam, John


Clarke, Thomas
Madden, Max


Clay, Robert
Mason, Rt Hon Roy


Clelland, David Gordon
Maxton, John


Cocks, Rt Hon M. (Bristol S)
Maynard, Miss Joan


Cohen, Harry
Meacher, Michael


Coleman, Donald
Mikardo, Ian


Cook, Robin F. (Livingston)
Millan, Rt Hon Bruce


Cox, Thomas (Tooting)
Miller, Dr M. S. (E Kilbride)


Craigen, J. M.
Mitchell, Austin (G't Grimsby)


Crowther, Stan
Morris, Rt Hon J. (Aberavon)


Dalyell, Tam
Nellist, David


Davies, Ronald (Caerphilly)
Parry, Robert


Davis, Terry (B'ham, H'ge H'l)
Patchett, Terry


Dewar, Donald
Pavitt, Laurie


Dixon, Donald
Pendry, Tom


Dormand, Jack
Penhaligon, David


Douglas, Dick
Pike, Peter


Eastham, Ken
Powell, Raymond (Ogmore)


Field, Frank (Birkenhead)
Prescott, John


Fields, T. (L'pool Broad Gn)
Randall, Stuart


Flannery, Martin
Redmond, Martin


Forrester, John
Robinson, G. (Coventry NW)


Foster, Derek
Rogers, Allan


Foulkes, George
Ross, Stephen (Isle of Wight)


Freud, Clement
Rowlands, Ted


George, Bruce
Shields, Mrs Elizabeth


Godman, Dr Norman
Silkin, Rt Hon J.


Gould, Bryan
Skinner, Dennis


Hardy, Peter
Smith, Rt Hon J. (M'ds E)


Harrison, Rt Hon Walter
Snape, Peter


Haynes, Frank
Spearing, Nigel


Hogg, N. (C'nauld &amp; Kilsyth)
Steel, Rt Hon David


Holland, Stuart (Vauxhall)
Thompson, J. (Wansbeck)


Home Robertson, John
Thorne, Stan (Preston)


Howells, Geraint
Wallace, James


Hughes, Simon (Southwark)
Wardell, Gareth (Gower)


John, Brynmor
Welsh, Michael


Jones, Barry (Alyn &amp; Deeside)
Wigley, Dafydd


Kaufman, Rt Hon Gerald
Wilson, Gordon


Kirkwood, Archy
Winnick, David


Lambie, David
Woodall, Alec


Leadbitter, Ted



Lewis, Terence (Worsley)
Tellers for the Ayes:


Livsey, Richard
Mr. James Hamilton and


McGuire, Michael
Mr. Mark Fisher.


McKay, Allen (Penistone)





NOES


Alexander, Richard
Brown, M. (Brigg &amp; Cl'thpes)


Amess, David
Browne, John


Ancram, Michael
Bruinvels, Peter


Arnold, Tom
Bulmer, Esmond


Ashby, David
Burt, Alistair


Aspinwall, Jack
Butcher, John


Atkinson, David (B'm'th E)
Butterfill, John


Baker, Nicholas (Dorset N)
Carlisle, John (Luton N)


Baldry, Tony
Carlisle, Kenneth (Lincoln)


Banks, Robert (Harrogate)
Carlisle, Rt Hon M. (W'ton S)


Batiste, Spencer
Carttiss, Michael


Beaumont-Dark, Anthony
Cash, William


Bellingham, Henry
Chapman, Sydney


Bendall, Vivian
Chope, Christopher


Benyon, William
Clark, Dr Michael (Rochford)


Best, Keith
Clark, Sir W. (Croydon S)


Bevan, David Gilroy
Clarke, Rt Hon K. (Rushcliffe)


Biffen, Rt Hon John
Clegg, Sir Walter


Biggs-Davison, Sir John
Colvin, Michael


Blackburn, John
Conway, Derek


Boscawen, Hon Robert
Coombs, Simon


Bottomley, Peter
Cope, John


Bottomley, Mrs Virginia
Cormack, Patrick


Bowden, A. (Brighton K'to'n)
Corrie, John


Braine, Rt Hon Sir Bernard
Couchman, James


Brandon-Bravo, Martin
Crouch, David


Bright, Graham
Dicks, Terry


Brinton, Tim
Douglas-Hamilton, Lord J.


Brittan, Rt Hon Leon
Dover, Den






Dunn, Robert
Monro, Sir Hector


Evennett, David
Montgomery, Sir Fergus


Eyre, Sir Reginald
Morris, M. (N'hampton S)


Fallon, Michael
Moynihan, Hon C.


Farr, Sir John
Murphy, Christopher


Favell, Anthony
Nelson, Anthony


Fenner, Mrs Peggy
Newton, Tony


Fletcher, Alexander
Nicholls, Patrick


Fookes, Miss Janet
Norris, Steven


Forman, Nigel
Oppenheim, Phillip


Forsyth, Michael (Stirling)
Osborn, Sir John


Forth, Eric
Parkinson, Rt Hon Cecil


Fox, Marcus
Pawsey, James


Gale, Roger
Pollock, Alexander


Gardiner, George (Reigate)
Powell, William (Corby)


Garel-Jones, Tristan
Powley, John


Glyn, Dr Alan
Prentice, Rt Hon Reg


Goodhart, Sir Philip
Price, Sir David


Gow, Ian
Proctor, K. Harvey


Gower, Sir Raymond
Raffan, Keith


Gregory, Conal
Rathbone, Tim


Griffiths, Sir Eldon
Rhys Williams, Sir Brandon


Ground, Patrick
Ridsdale, Sir Julian


Grylls, Michael
Roe, Mrs Marion


Hamilton, Hon A. (Epsom)
Rossi, Sir Hugh


Hamilton, Neil (Tatton)
Rowe, Andrew


Hampson, Dr Keith
Ryder, Richard


Hargreaves, Kenneth
Sackville, Hon Thomas


Harris, David
Shelton, William (Streatham)


Hawksley, Warren
Shepherd, Colin (Hereford)


Hayward, Robert
Shersby, Michael


Heddle, John
Silvester, Fred


Hind, Kenneth
Smith, Sir Dudley (Warwick)


Hirst, Michael
Smith, Tim (Beaconsfield)


Hogg, Hon Douglas (Gr'th'm)
Soames, Hon Nicholas


Holland, Sir Philip (Gedling)
Spencer, Derek


Hordern, Sir Peter
Spicer, Jim (Dorset W)


Howard, Michael
Stanbrook; Ivor


Hunter, Andrew
Steen, Anthony


Jones, Gwilym (Cardiff N)
Stern, Michael


Jones, Robert (Herts W)
Stevens, Lewis (Nuneaton)


Kershaw, Sir Anthony
Stewart, Allan (Eastwood)


Knight, Greg (Derby N)
Stewart, Andrew (Sherwood)


Lamont, Norman
Stradling Thomas, Sir John


Lawrence, Ivan
Taylor, John (Solihull)


Lee, John (Pendle)
Tebbit, Rt Hon Norman


Leigh, Edward (Gainsbor'gh)
Temple-Morris, Peter


Lennox-Boyd, Hon Mark
Terlezki, Stefan


Lightbown, David
Thomas, Rt Hon Peter


Lilley, Peter
Thompson, Donald (Calder V)


Lord, Michael
Thorne, Neil (Ilford S)


McCrindle, Robert
Thornton, Malcolm


McCurley, Mrs Anna
Thurnham, Peter


MacKay, Andrew (Berkshire)
Townend, John (Bridlington)


MacKay, John (Argyll &amp; Bute)
Wakeham, Rt Hon John


Maclean, David John
Walker, Bill (T'side N)


McLoughlin, Patrick
Waller, Gary


McNair-Wilson, M. (N'bury)
Ward, John


Major, John
Wardle, C. (Bexhill)


Malins, Humfrey
Watts, John


Malone, Gerald
Wells, Bowen (Hertford)


Maples, John
Wells, Sir John (Maidstone)


Marland, Paul
Whitfield, John


Marlow, Antony
Wilkinson, John


Marshall, Michael (Arundel)
Winterton, Mrs Ann


Mates, Michael
Wolfson, Mark


Mather, Carol
Wood, Timothy


Maude, Hon Francis
Woodcock, Michael


Mayhew, Sir Patrick
Young, Sir George (Acton)


Merchant, Piers



Meyer, Sir Anthony
Tellers for the Noes:


Miscampbell, Norman
Mr. Tony Durant and


Mitchell, David (Hants NW)
Mr. Peter Lloyd.


Moate, Roger

Question accordingly negatived.

Clause added to the Bill.

BUSINESS OF THE HOUSE

Ordered,
That, at this day's sitting, the Motions relating to the Financial Services Bill, the Latent Damage Bill [Lords], and the Crown Agents (Amendment) Bill, may be proceeded with though opposed, until any hour.—[Mr. Durant.]

Financial Services Bill

As amended, in the Standing Committee, further considered.

New Clause 6

ALTERATION OF RULES FOR PROTECTION OF INVESTORS

'(1) If at any time it appears to the Secretary of State that the rules of a recognised organisation do not satisfy the requirements of paragraph 3(1) of Schedule 2 to this Act he may, instead of revoking the recognition order or making an application under section 12 above, direct the organisation to alter, or himself alter, its rules in such manner as he considers necessary for securing that the rules satisfy those requirements.

(2) If at any time it appears to the Secretary of State that the rules and practices of a recognised organisation which is concerned with two or more kinds of investment business do not satisfy any requirement of Schedule 2 to this Act in respect of investment business of any of those kinds he may, instead of revoking the recognition order or making an application under section 12 above, direct the organisation to alter, or himself alter, its rules so that they preclude a member from carrying on investment business of that kind unless he is an authorised person otherwise than by virtue of membership of the organisation.

(3) Any direction given under this section shall, on the application of the Secretary of State, be enforceable by mandamus or, in Scotland, by an order for specific performance under section 91 of the Court of Session Act 1868.

(4) Before giving a direction or making any alteration under subsection (1) above the Secretary of State shall consult the organisation concerned.

(5) A recognised organisation whose rules have been altered by or pursuant to a direction given by the Secretary of State under subsection (1) above may apply to the court and if the court is satisfied—

(a) that the rules without the alteration satisfied the requirements mentioned in that subsection; or
(b) that other alterations proposed by the organisation would result in the rules satisfying those requirements,
the court may set aside the alteration made by or pursuant to the direction given by the Secretary of State and, in a case within paragraph (b) above, order the organisation to make the alterations proposed by it; but the setting aside of an alteration under this subsection shall not affect its previous operation.

(6) The jurisdiction conferred by subsection (5) above shall be exercisable by the High Court and the Court of Session.

(7) Section 11(2) to (7) and (9) above shall, with the necessary modifications, have effect in relation to any direction given or alteration made by the Secretary of State under subsection (2) above as they have effect in relation to an order revoking a recognition order.

(8) The fact that the rules of a recognised organisation have been altered by or pursuant to a direction given by the Secretary of State or pursuant to an order made by the court, under this section, shall not preclude their subsequent alteration or revocation by that organisation.' — [Mr. Howard.]

Brought up, and read the First time.

Mr. Howard: I beg to move, That the clause be read a Second time.

Mr. Speaker: With this we shall discuss Government amendments Nos. 34 to 38, 43 and 57 to 60.

Mr. Howard: When we discussed in Committee the provisions of the Bill relating to RSROs, it was clear that there was widespread support for the proposal that the Secretary of State or designated agency should have the power in certain circumstances to alter the rules of an RSRO without having to apply to the courts under the procedure provided for in clause 12. I undertook at that stage to consult interested parties and bring forward an amendment on Report. The new clause reflects the results of those consultations.
As hon. Members will recognise, the new clause incorporates the provisions of the existing clause 13. The new power is provided in subsections (1), (4), (5) and (6). The clause will allow the Secretary of State or designated agency to act quickly when the interests of investors so demand, but will also allow an RSRO an opportunity to have its original rules, or an alteration proposed by the organisation, restored. I believe that this proposal strikes the right balance between effective enforcement by the Secretary of State or designated agency and the autonomy which RSROs will need if they are to command confidence and authority. The proposal is, I believe, acceptable to the Securities and Investments Board and to the potential RSROs. I commend it to the House.
The amendments to clause 12 extend the compliance order provisions to cases where a self-regulating organisation, a registered investment exchange or a recognised clearing house has failed to comply with an obligation to which it is subject by virtue of the Bill. Under the Bill as originally drafted, such a failure was a ground for revocation of a recognition order but not for seeking a compliance order. The Government will be bringing forward amendments in another place to apply the compliance order provisions to recognised professional bodies.
The remaining amendments are largely technical. They make clear that a failure to comply with an obligation imposed under, for instance, clause 91 — which is concerned with the provision of information — constitutes grounds for the revocation of a recognition order.

Mr. Gould: 'The new clause represents the fulfilment of yet another undertaking, I think it is fair to say, extracted from the Minister by an all-party consensus in the Standing Committee. Indeed, it could be claimed to have been our first major victory. Therefore, I am delighted to see it. Since I was criticised on an earlier occasion for failing to take credit for a change which the Minister proposed, I shall take the credit for that amendment. I also pay tribute to the Minister's hon. Friends on the Committee who agreed with the position we took. I believe that, in the end, we agreed to support the amendment of the hon. Member for Beaconsfield (Mr. Smith).
The amendment that the Minister has finally produced is, to all intents and purposes, a complete fulfilment of his undertaking. One regrets, perhaps, that the Securities and Investments Board's preference for practices as well as rules to be subject to the rule-changing power has not been given effect. I think that the Minister has gone as far as one could reasonably expect him to to meet the virtually unanimous view of the Standing Committee. Even the self-regulating organisations which, for understandable reasons, were not keen on the change have reluctantly accepted it, or at least have not resisted it too strenuously.
I should like the Minister to elaborate on two small points. The fact that a rule book change is forced on a self-regulating organisation by the new power under subsection (8) does not mean that the rule book is set in concrete. Nevertheless, it opens up, at least, the rather unattractive prospect that there may be an unedifying game of ping-pong between the SIB and an SRO. Can the Minister say how he will avoid such an unfortunate circumstance?
The Minister proposes that a self-regulating organisation which has been subjected to the power under subsection (5) should be able to go to the court to have the decision reversed. I would agree with him if he said that the power of judicial review should be available. It is difficult to see how it could be excluded. I regret that the Minister has found it necessary to provide a right of appeal, in effect, on the merits. That can only introduce an unwelcome element of uncertainty.
It is appropriate to refer to the fact that although the new clause does not deal with the matter, the Minister does not propose to introduce a similar measure in respect of recognised professional bodies, although that was something which the Committee had asked for and expressed an opinion on. As I understand from the Minister, the matter is to be dealt with in another place. One must recognise and establish that the Minister, perhaps for understandable reasons, has failed to fulfil an undertaking that he gave to the Committee. We must register our disappointment that he has not moved on that element, although we accept that he has substantially fulfilled the undertaking he gave on self-regulating organisations.

Mr. Nelson: The hon. Member for Dagenham (Mr. Gould) is difficult to please. When his arguments fail to move my hon. and learned Friend the Under-Secretary of State, he complains. When his arguments move my hon. and learned Friend, he complains. When my hon. and learned Friend changes his view because of outside influences, the hon. Gentleman commplains. My hon. and learned Friend should not feel too disappointed or surprised at the reaction to the new clause.
I very much welcome the new clause. I welcome the responsive way in which my hon. and learned Friend replied to the debate in Committee. In the judgment or many of us, it is important that the self-regulating organisations should to some extent, have their powers fettered by the supervisory intervention—at least on a contingent basis — of the designated agency, the Securities and Investments Board. I think as do many others, that it is an essential and important part of the new regulatory structure that the designated body will be able to act in certain instances quickly and positively where investor protection is imperilled.
I should like to take up specifically the point concerning the recognised professional bodies. Recently, my hon. and learned Friend answered a question that I had tabled on this matter. He made it clear that he intended to deal with their position in a rather different way. I had great misgivings about extending to any of the professions an exemption from the rule-changing power of the SIB. It seemed to me that many people in the professions were to an increasing extent, offering the same sort of investment service as many individuals or authorised persons. It would be wrong, when those people were departing from the mainstream activity of their chartered body and


moving into these more lucrative areas, to extend to them a preferential status or immunity from their charter rules being changed thereby placing authorised persons operating under other SROs in a preferential position.
Having said that, I found the arguments put forward by my hon. and learned Friend very compelling. He argued that the recognised professional bodies would enable only their individual members or member firms to give incidental or limited investment advice. Because the type of business that individuals or firms within professions will be able to offer will be much more limited than the type of investment advice that other organisations will be able to offer, there is perhaps less need for the sort of rule-changing power that will be imposed on other SROs.
In accepting that, I should like to enter one important caveat. Much depends on the policing by the SIB of the professions. If it transpires that many of the recognised professional bodies are engaging, not in incidental general investment advice, but in particular wide-ranging investment advice and are operating outside the sphere of the professional body in such a way that they should get separate authorisation, this matter should be reviewed, even if it touches the sensibilities of some of the royal charter organisations. For the time being at least, it is reasonable to deal with the matter in this separate way. Perhaps my hon. and learned Friend will direct his attention to the more particular proposals that he intends to make in another place.

Mr. Ashdown: I join in welcoming the new clause and in paying tribute to the hon. Member for Beaconsfield (Mr. Smith), whose amendment in Committee is put into effect by this new clause. I am sure he recognises that other hon. Members argued for that amendment as well. It has been a vehicle for a useful debate.
I must express a degree of disappointment. The Under-Secretary of State has allowed for alteration of the rules but not followed the sensible recommendations put forward by Sir Kenneth Berrill in his letter to the Minister in which he cogently argued in favour of a similar level of intervention and power in the case of practices.
The particular practice in which one is interested is the enforcement of the rules. It is one thing to have a set of rules; it is another thing to ensure that the self-regulating organisation concerned enforces them adequately. I believe that the Minister must answer that point more fully, and I hope he will say why he agrees that there should be intervention in the case of rules without having to seek recourse to what was referred to in Committee as the "nuclear deterrent," the ultimate revocation of recognition, but he has not applied that in the case of practices.
We all recognise that we are talking about a reserve power. It is a power that is most unlikely to be used. Indeed, the fact that the power is on the statute book means, in many cases, that it will never be used. Were it not there, obviously the leverage that could be exercised by the SIB in respect of an SRO would be considerably less than it currently is. We all know, and Sir Kenneth Berrill has made it clear, that he would wish the broadest level of consultation to occur before such a reserve power was used. Therefore, it would be the ultimate "nuclear deterrent" of revocation.
If that is a reserve power, one which the Minister agrees is unlikely to be used, and would be used only under exceptional circumstances, why has he not been prepared to extend it just one small step further to ensure that the SIB can intervene in respect of practices, especially in respect of enforcement? That seems to lose nothing and to gain a great deal in the powers of the SIB.
In his reply to the letter from Sir Kenneth Berrill of 10 April the Minister said, although I did not find it convincing:
But I do not think there is the same need to be able to act immediately about practices. Problems about the adequacy of enforcement or other practices are likely to develop only over a period.
Would that it were always so. Unhappily, that is not the case. Reference has been made to the Westland affair. It would be wrong at this point to state categorically that the rules of the Stock Exchange were overturned in that affair. However, there is some question over the matter. What happened was that the people involved simply went ahead and acted and presented the stock exchange with what was essentially a fait accompli. There is similar concern over the activities of people involved in, for example, dawn raids and whether that infringes the rules.
The question of having an ultimate reserve power to be able to dictate or intervene in the enforcement of the rules laid down by an SRO is important, not only as a reserve power, but to enable the SIB to move quickly and effectively and with the maximum amount of influence. I believe that this is an important point, and I hope that in answering the debate the Minister will at least give rather more flesh to what I thought was scanty reasoning in his reply to Sir Kenneth Berrill, so that the House will understand why he has chosen to limit this ultimate reserve power to just short of that which I believe to be necessary.

Mr. Cash: Following the rather unsatisfactory position in which we now find ourselves as a result of passing new clause 5, I should like to welcome new clause 6 because it provides an opportunity for rectifying some of the difficulties which may arise under new clause 5. I hope that new clause 6 can be used to the fullest possible extent for that objective.
On the matter of the recognised professional bodies, I should like to draw the Minister's attention to the fact that there appears to be a slight omission from clause 18. I drew that to the Minister's attention in Committee, but it does not seem to have been taken up. On some reasonable construction of clause 18, the Law Society would not qualify as a recognised professional body. That is somewhat extraordinary and I should be glad to hear from the Minister on that point.
I should simply like to say that, at the end of the day, schedule 2 will determine the manner in which the Bill operates and, unless we use the powers of new clause 6 effectively I fear that it will not work as we had intended and as we had understood it would in Committee.
New clause 6 applies to circumstances which arise after an event has occurred, whereas new clause 5 would have created a situation in which a body—to all intents and purposes a statutory body, in respect of which the law on negligence is well established—would have been able to operate in the same way as the CEGB, for example, if it faced a statutory liability involving sums similar to those in other examples of such liability.

Mr. Tim Smith: As I moved the amendment in Committee which would have had the same effect as the new clause, I should like to welcome the fact that my hon. and learned Friend the Minister has introduced the clause. I think that it meets the concerns of all those who spoke in Committee on this issue.
I shall refer to the position of recognised professional bodies because my hon. and learned Friend said in Committee that he would deal with the matter subject to the practical difficulties. We are all conscious that the position of the RPBs is different from that of the SROs as they already exist. Indeed, some of them are subject to a royal charter. There were probably two considerations that my hon. and learned Friend had in mind when he told my hon. Friend the Member for Chichester (Mr. Nelson) in an answer on Monday that he proposed to deal with RPBs by introducing provisions along the lines of clause 12.
We are talking only about incidental investment advice. My hon. and learned Friend talked about the possibility of a new sort of mainstream work for professionals, and if it is mainstream work they will not be able to follow this route. They will have to have authorisation from an SRO, or directly from the SIB. Secondly. the way in which my hon. and learned Friend proposes to deal with the matter will ensure, as the courts will be involved, that any difficulties arising from royal charters or any other constitutional problems will be dealt with by the courts.

Mr. Howard: I am grateful for the general welcome that the new clause has received. We said at the outset that judgment on this issue was finely balanced and that we would listen to the views that were expressed. It was on that basis that I felt able to accede readily to the view that was expressed almost unanimously in Committee that a direct rule-changing power should be introduced.
I confess that I was mildly surprised, but pleasantly so, that the amendment that we devised was able to obtain the approval of the SIB and the SROs. I regard that as a considerable achievement. It was a balance, and if we disturbed it in the way which has been suggested by some Opposition Members, I do not think it certain that we would preserve the accord.
The hon. Member for Dagenham (Mr. Gould) referred to clause 8, and his argument was covered by his remarks about clause 5. As the court is the arbiter of these matters, there would be no point in the ping-pong that he envisaged. It would be idle for an SRO to change immediately a rule change which had been ordered by the court, as it would find itself back in court with the same consequences. It was essential that some provision such as that in clause 8 be introduced, otherwise once a rule had been changed by the court it would he set in concrete and could not be changed. That would obviously be undesirable.
That fact that the court can consider the merits of the argument under subsection (5) is part of the balance to which I have referred, and which I believe it is important to keep. That is the answer to the hon. Member for Yeovil (Mr. Ashdown). The fact that intervention in the practices of the SRO is not to be provided by the clause is part of the same balance. I adhere to the argument that I set out in my letter to Sir Kenneth Berrill that the reason

advanced for the provision for a direct rule-changing power which the clause provides is the need for speedy and effective action to be taken over the change in rules.
As it is not envisaged as part of the regulatory structure that the designated agency should interfere with specific cases for discipline or enforcement but only with the general pattern which it is its duty to assess, there cannot be the same need for a speedy and immediate response in relation to practices as is necessary with changes in the rules. That is the reason that I explained in my answer to Sir Kenneth Berrill and I do not in any way [rime from that. I remind the House that in order to achieve a proper balance, we must take all the elements of a solution into account.

Mr. Gould: Does the Minister agree that the development of an objectionable practice may nevertheless be evidence of a lacuna in the rules? In that sense we ought to be considering practices as well as rules, to ensure that abuses are not allowed to develop unchecked.

Mr. Howard: Of course objectionable practices should not he allowed to develop. However, the way in which the hon. Gentleman put his question confirms that that is not something that happens at a moment in time, requiring a snapshot response in the same way that a change in the rules or a failure to change the rules on the part of a self-regulatory organisation may require. The evolution of an objectionable pattern in terms of practices needs to be assessed over a period, can be assessed over a peroid and can be dealt with by the designated agency in many ways without the need for this immediate rule or practice-changing power which the clause provides.

Mr. Ashdown: I will not press the Minister too far on this point, because we could get into a ridiculous position. However, I would like to postulate a possible situation. There may be a set of rules in an SRO—for example, the stock exchange—which govern the business of the operation of dawn raids. A pattern may develop in the stock exchange where a number of these are causing damage to the probity of the stock exchange and of the City and operating in a way that is damaging to the investors. There are rules, but the stock exchange has chosen, for all sorts of complicated reasons no doubt, through the enormous pressure from its members, simply not to enforce those rules or not to enforce them adequately. In this matter of enforcement, it would be important for the SIB to be able to act quickly and to have a reserve power whereby the SIB can say that the rule must be enforced more effectively to provide precisely the swift action which I believe is necessary.

Mr. Howard: The hon. Gentleman's example proves my point. It would be undesirable for the designated agency to intervene in any specific case of abuse of that nature. If the hon. Gentleman is worried about a pattern, which by definition is not instant but which develops over a period, the designated agency would be able to make use of the other remedies that are available to ensure that proper enforcement is undertaken by self-regulating organisations. I do not think that the case for instant response of the kind which the direct rule-changing power confers has been made out in connection with practices. I believe that the balance is about right in the clause as it stands and I commend it to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 7

RECIPROCAL FACILITIES FOR FINANCIAL BUSINESS

'.—(1) If it appears to the Secretary of State or the Treasury that by reason of—

(a) the law of any country outside the United Kingdom; or
(b) any action taken by or the practices of the government or any other authority or body in that country,
persons connected with the United Kingdom are unable to carry on investment, insurance or banking business in, or in relation to, that country on terms as favourable as those on which persons connected with that country are able to carry on any such business in, or in relation to, the United Kingdom, the Secretary of State or, as the case may be, the Treasury may serve a notice under this subsection on any person connected with that country who is carrying on or appears to them to intend to carry on any such business in, or in relation to, the United Kingdom.

(2) No notice shall be served under subsection (1) above unless the Secretary of State or, as the case may be. the Treasury consider it in the national interest to serve it; and before doing so the Secretary of State or, as the case may be, the Treasury shall so far as they consider expedient consult such body or bodies as appear to them to represent the interests of persons likely to be affected.

(3) A notice under subsection (1) above shall state the grounds on which it is given (identifying the country in relation to which those grounds are considered to exist); and any such notice shall come into force on such date as may be specified in it.

(4) For the purposes of this section a person is connected with a country if it appears to the Secretary of State or, as the case may be, the Treasury—
(a) in the case of an individual, that he is a national of or resident in that country or carries on investment, insurance or banking business from a principal place of business there;
(b) in the case of a body corporate, that it is incorporated or has a principal place of business in that country or is controlled by a person or persons connected with that country;
(c) in the case of a partnership, that it has a principal place of business in that country or that any partner is connected with that country;
(d) in the case of an incorporated association which is not a partnership, that it is formed under the law of that country, has a principal place of business there or is controlled by a person or persons connected with that country.

(5) In this section "country" includes any territory or part of a country or territory; and where it appears to the Secretary of State or, as the case may be, the Treasury that there are such grounds as are mentioned in subsection (1) above in the case of any part of a country or territory their powers under that subsection shall also be exercisable in respect of any person who is connected with that country or territory or any other part of it.'. —[Mr. Howard.]

Brought up, and read the First time

Mr. Howard: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Paul Dean): With this it will be convenient to consider Government new clauses 8, 9 and 10 and Government amendments 251, 254 and 257.

Mr. Howard: New clauses 7, 8, 9 and 10 replace clause 151. The changes are designed to make the reciprocity provision more flexible. It was decided to include a reciprocity provision in the Bill to provide the United Kingdom with leverage in seeking access for our financial services firms to foreign markets. At present there are no powers to prevent foreign firms from becoming established as banks or securities dealers, provided they meet the legal requirements. The reciprocity provision empowers the

Secretary of State—the power is not to be transferable to the designated agency — to disqualify or restrict a foreign connected firm from carrying out investment or insurance business if British firms do not enjoy access to that foreign market equivalent to that which foreign firms enjoy here. The Treasury has a similar power to disqualify in respect of banking business. The power is applicable to those seeking authorisation as well as to those already authorised to do business.
The power as originally drafted would have meant disqualifying or restricting a firm in respect of all of its investment, insurance or banking business. On reflection, we consider that this total business approach lacks flexibility and risks unnecessary hardship for investors.
We now propose, therefore, to introduce a further category of restriction — a partial restriction notice. It will enable the Secretary of State, or the Treasury, to focus any such restriction on any type of business which a firm is authorised to carry out, or on the way in which such business may be conducted. A firm might be prohibited from dealing in options on securities but not from dealing in the underlying securities themselves. Similarly, a firm might be prohibited from dealing with certain categories or, by contrast, confined to dealing only with certain categories. It will give us much greater flexibility in deciding how to use the reciprocity power, the allow us more easily to take into account the interests of British investors, policyholders or depositors.
The Secretary of State and the Treasury will be subject to the same requirements and will be required to follow the same procedures for partial restriction notices as for other forms of notice served under this provision. The restriction must be considered to be in the national interest, the notice Must state the grounds and it must give a date when it will come into effect.
We were persuaded by discussion in Committee that notices should not automatically come into effect on the date of service to give the firms affected an opportunity to unwind their existing busines with the minimum adverse impact on investors, policyholders, or depositors. We were also persuaded that disqualification notices should not restrict authorisation in respect of contracts entered into before the notice comes into force. This, too, will minimise the adverse effect on investors, policyholders, or depositors.
This is an important provision. Knowledge that it is to he included in the Bill has already helped us in seeking improved access to foreign markets for our financial firms. Nor are we alone. Many other countries already have a variety of reciprocity provisions in respect of financial services, and many of those provisions require strict reciprocity, failing which access is forbidden. Our provision is discretionary. We have the choice whether or when to use it and the ability to be selective about how we use it. Of course, we hope not to have to use it, but we will not hesitate to do so if we have to.
As a consequence of these changes, it is necessary to leave out clause 151. Further consequential changes are needed to clause 158 to ensure that prosecutions in respect of offences under new clause 9 are instituted in the same way as prosecutions for breaches of the Banking Act 1979.

Mr. Gould: As the Minister knows, we welcome the reciprocity provisions.
The Minister used the euphemism of increased flexibility. Will he concede that one of the principal


changes effected by these four new clauses is to strike out the retrospective nature of the disqualification order, which was understandably objected to by some Conservative members of the Committee?
Will the Minister assure us that the increased flexibility does not imply a derogation of the admirably robust sentiments that were expressed in Committee, which found a welcoming echo from the Opposition, and that the reciprocity provisions will be enforced with all due vigour?

Mr. Nelson: I oppose this group of new clauses and amendments. It is somewhat futile for me to say so, and I promise not to be an impediment to their passage. I expressed my objections on Second Reading and in Committee, and had suffered the ignominy of being the only person to vote against the provision. I want to restate my objections because I know that, if they are not shared by any other hon. Members, they are shared by some people outside the House.
I object to these reciprocity provisions for several reasons. One is that they lie uneasily in the Bill. They have nothing whatever to do with investor protection and should not be here. They are wrong because they seek to infringe the practice and obligations of companies that have legitimately engaged in business, been attracted here, provided employment and prosperity and enhanced the productivity and foreign earnings of the City of London. They are also in restraint of the competition principles to which I think that my party and Government should subscribe. I accept that they have helped my hon. and learned Friend the Minister, most recently in Japan, but I regret that more countries must engage in such sword-of-Damocles legislation. It lies uneasily with other principles that we expound, and I like to think that I have been no party to it. But I shall not waste the time of the House other than to restate my objections, for I fear that, in the course of time, the matter will be raised again.

Mr. Ashdown: I rise briefly to correct the hon. Member for Chichester (Mr. Nelson), who forgot that I voted with him in Committee on that occasion. However, he is alone now. The Minister has moved, and I am grateful for the flexibility that he has introduced in operation and discretion. Although I share many of the hon. Gentleman's sentiments, for exactly the same reasons, it is important to have such a power available to be used as flexibly as possible. Contrary to the comments of the hon. Member for Dagenham (Mr. Gould), whose first instinct in such matters seems to be the Little Englander idea of trading practices and reciprocal operations, I hope that the Minister will use the provision sparingly, recognising that there is increasing protectionism in the world, which must damage Britain's trading capacity, especially since it is primarily a trading nation.

Mr. Howard: I share the regret expressed by my hon. Friend the Member for Chichester (Mr. Nelson) at the need for such swords of Damocles. However, I am no more in favour of unilateral disarmament in this area than I am in others.
I can briefly answer the two questions asked by the hon. Member for Dagenham (Mr. Gould). I see no inconsistency between the flexibility called for by the hon. Member for Yeovil (Mr. Ashdown) and the rigour called

for by the hon. Member for Dagenham. I hope that the clause will be applied flexibly and rigorously, and I am happy to answer both his questions in the affirmative.

Question put and agreed to.

Clause read a Second tune, and added to the Bill.

New Clause 8

INVESTMENT AND INSURANCE BUSINESS

'(1) A notice under section [Reciprocal facilities for financial business] above relating to the carrying on of investment business or insurance business shall be served by the Secretary of State and such a notice may be a disqualification notice, a restriction notice or a partial restriction notice and may relate to the carrying on of business of both kinds.

(2) A disqualification notice as respects investment business or insurance business shall have the effect of—
(a) cancelling any authorisation of the person concerned to carry on that business after the expiry of such period after the service of the notice as may be specified in it;
(b) disqualifying him from becoming authorised to carry on that business after the expiry of that period; and
(c) restricting any authorisation of the person concerned in respect of that business during that period to the performance of contracts entered into before the notice comes into force;
and the period specified in such a notice shall be such period as appears to the Secretary of State to be reasonable to enable the person on whom it is served to complete the performance of those contracts and to terminate such of them as are of a continuing nature.

(3) A restriction notice as respects investment business or insurance business shall have the effect of restricting any authorisation of the person concerned in respect of that business to the performance of contracts entered into before the notice comes into force.

(4) A partial restriction notice as respects investment business may prohibit the person concerned from—

(a) entering into transactions of any specified kind or entering into them except in specified circumstances or to a specified extent;
(b) soliciting business from persons of a specified kind or otherwise than from such persons;
(c) carrying on business in a specified manner or otherwise than in a specified manner.

(5) A partial restriction notice as respects insurance business may direct that the person concerned shall cease to be authorised under section 3 or 4 of the Insurance Companies Act 1982 to effect contracts of insurance of any description specified in the notice.

(6) If it appears to the Secretary of State that a person on whom he serves a notice under section [Reciprocal facilities for financial business] above as respects investment business is an authorised person by virtue of an authorisation granted by a designated agency or by virtue of membership of a recognised self-regulating organisation or recognised professional body he shall serve a copy of the notice on that agency, organisation or body.

(7) If it appears to the Secretary of State—

(a) that any person on whom a partial restriction notice has been served by him has contravened any provision of that notice or, in the case of a notice under subsection (5) above, effected a contract of insurance of a description specified in the notice; and
(b) that any such grounds as are mentioned in subsection (1) of section [Reciprocal facilities for financial business] above still exist in the case of the country concerned,
he may serve a disqualification notice or a restriction notice on him under that section.

(8) Sections 27, 32, 55, 56 and 57 above shall have effect in relation to a contravention of such a notice as is mentioned


in subsection (4) above as they have effect in relation to any such contravention as is mentioned in those sections.' — [Mr. Howard.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 9

BANKING BUSINESS

'(1) A notice under section [Reciprocal facilities for financial business] above relating to the carrying on of a deposit-taking business as a recognised bank or licensed institution within the meaning of the Banking Act 1979 shall be served by the Treasury and may be either a disqualification notice or a partial restriction notice.

(2) A disqualification notice relating to such business shall have the effect of—

(a) cancelling any recognition or licence granted to the person concerned under the Banking Act 1979; and
(b) disqualifying him from becoming a recognised bank or licensed institution within the meaning of that Act.

(3) A partial restriction notice relating to such business may—
(a) prohibit the person concerned from dealing with or disposing of his assets in any manner specified in the direction;
(b) impose limitations on the acceptance by him of deposits;
(c) prohibit him from soliciting deposits either generally or from persons who are not already depositors;
(d) prohibit him from entering into any other transaction or class of transactions;
(e) require him to take certain steps, to pursue or refrain from pursuing a particular course of activities or to restrict the scope of his business in a particular way.

(4) The Treasury shall serve on the Bank of England a copy of any notice served by them under section [Reciprocal facilities for financial business] above.

(5) Any person who contravenes any provision of a partial restriction notice served on him by the Treasury under this section shall be guilty of an offence and liable—
(a) on conviction on indictment, to a line;
(b) on summary conviction, to a fine not exceeding the statutory maximum.

(6) Any such contravention shall be actionable at t he suit of any person who suffers loss as a result of the contravention or is otherwise adversely affected by it. but no such contravention shall invalidate any transaction.

(7) At the end of subsection (1) of section 8 of the Banking Act 1979 (power to give directions in connection with termination of deposit-taking authority) there shall be inserted—
(d) at any time after a disqualification notice has been served on the institution by the Treasury under section [Reciprocal facilities for financial business] of the Financial Services Act 1986…[Mr. Howard.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 10

VARIATION AND REVOCATION OF NOTICES

'(1) The Secretary of State or the Treasury may vary a partial restriction notice served under section [Reciprocal facilities for financial business] above by a notice in writing served on the person concerned; and any such notice shall come into force on such date as is specified in the notice.

(2) A notice under section [Reciprocal facilities for financial business] above may be revoked at any time by the Secretary of State or, as the case may be, the Treasury by serving a revocation notice on the person concerned; and the Secretary of State or, as the case may be, the Treasury shall

revoke a notice if it appears to them that there are no longer any such grounds as are mentioned in subsection (1) of that section in the case of the country concerned.

(3) The revocation of a disqualification notice as respects investment business or insurance business shall not have the effect of reviving the authorisation which was cancelled by the notice except where the notice relates to investment business and the person concerned would (apart from the disqualification notice) at the time of the revocation be an authorised person as respects the investment business in question by virtue of his membership of a recognised self-regulating organisation or recognised professional body.

(4) The revocation of a disqualification notice as respects banking business shall not have the effect of reviving the recognition or licence which was cancelled by the notice.

(5) Nothing in subsection (3) or (4) above shall be construed as preventing any person who has been subject to a disqualification notice as respects any business from again becoming authorised or, as the case may be, becoming a recognised bank or licensed institution within the meaning of the Banking Act 1979 after the revocation of the notice.

(6) If it appears to the Secretary of State that a person on whom he serves a notice under this section as respects investment business was an authorised person by virtue of an authorisation granted by a designated agency or by virtue of membership of recognised self-regulating organisation or recognised professional body at the time that the notice which is being varied or revoked was served, he shall serve a copy of the notice on that agency, organisation or body.

(7) The Treasury shall serve on the Bank of England a copy of any notice served by them under this section.'.—[Mr. Howard.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 11

INDUSTRIAL ASSURANCE

'(1) In section 5 of the Industrial Assurance Act 1923 (prohibition on issue of illegal policies) the references to policies which are illegal or not within the legal powers of a society or company shall not be construed as applying to any policy issued—

(a) in the course of carrying on investment business in contravention of section 3 above; or
(b) in the course of carrying on insurance business in contravention of section 2 of the Insurance Companies Act 1982.

(2) In section 20(4) of the said Act of 1923 the reference to a person employed by a collecting society or industrial assurance company and in section 34 of that Act the references to a person in the regular employment of such a society or company shall include references to an appointed representative of such a society or company but as respects secton 34 only if the contract in question is an investment agreement.

(3) No dispute to which rules made by virtue of section 45(2) (j) above (or corresponding rules made by a recognised self-regulating organisation) apply shall be referred to the Industrial Assurance Commissioner under section 32 of the said Act of 1923 but where those rules relate only to part of the matters in dispute—

(a) this subsection shall not preclude the reference to the Commissioner of the matters to which the rules do not relate; and
(b) the Commissioner may, if he thinks fit, delegate his functions in respect of those matters so as to enable all the matters in dispute to be determined in accordance with the rules.

(4) The foregoing provisions of this section shall apply to Northern Ireland with the substitution for the references to sections 5, 20(4), 32 and 34 of the said Act of 1923 of references to Articles 20, 27(2), 36 and 38 of the Industrial Assurance (Northern Ireland) Order 1979 and for the references to the Industrail Assurance Commissioner of references to the Industrial Assurance Commissioner for Northern Ireland.'.—[Mr. Butcher.]

Brought up, read the First and Second time, and added to the Bill.

Further consideration adjourned.—[Mr. Lennox-Boyd.]

To be further considered tomorrow.

Latent Damage Bill [Lords]

Order for Second Reading read

The Solicitor-General (Sir Patrick Mayhew): I beg to move, That the Bill be now read a Second time.
The Law Reform Committee has been in existence for 34 years. Its work is patient and constructive, and its valuable reports upon the matters referred to it by the Lord Chancellor recommend practical measures of law reform. It is a good thing. Accordingly, the world being what it is, not many people know about it.
The Bill seeks to enact the recommendations of the committee's 24th report, published in November 1984, on the subject of latent damage. It was asked to consider the law relating to the accrual of the cause of action and limitation in negligence cases involving latent defects, other than latent disease or injury to the person. Those cases can cause great distress. The law governing them must be practical, even-handed and just.
The character of the Bill is revealed by the words in which the committee expressed the first of its conclusions in its report:
The present law is unjust to plaintiffs and defendants. In our view, it requires reform which will take care of the interests of both. Reform is, therefore, bound to be, in effect, a compromise between conflicting interests.
That is exactly what the Bill comprises—a compromise between conflicting interests.
The Bill has three main objectives. The first is to amend the law relating to limitation of actions in negligence cases by providing potential plaintiffs with an extended period within which to commence proceedings of this nature. The second is to provide potential defendants with an overriding time limit, or a long stop, that will bar proceedings once 15 years have elapsed from the date of the defendant's original breach of duty. Thirdly, it gives a right of action to a person who acquired already damaged property when the fact of such damage was not already known and could not be known to him at the time when he acquired his interest.
In negligence cases it is the law that the cause of action accrues when damage occurs. The ordinary limitation period for negligence actions — apart from cases of personal injury with which the Bill is not concerned—is six years. Proceedings must be commenced within that time. Thereafter they will be time-barred.
In most cases of negligence the plaintiff is perfectly well able to discover within the normal six-year period of limitation that he has suffered damage. But in some cases, a defendant's negligence, or its effects, may lie hidden for years. For example, if a builder puts into a building defective foundations, the owner of the building may be quite unaware of the error. The property may pass through several hands before the damage becomes apparent. That can be many years after the initial lack of care.
In such cases, and they are multifarious in their circumstances, serious damage can result and real hardship may be caused. But the present law of limitation of actions often obstructs justice and is less than practical.
Under the present law, whose judicial development has been distinguished by some remarkable oscillations, for the victim of a negligent act or omission the starting date for reckoning the period of limitation is the date when the

damage actually occurs, and time will start to run against him even if' the damage is not discoverable. The result is that potential plaintiffs may find themselves barred from action before they knew, or could even be in a position to know, that they had suffered damage.
Potential defendants, too, are handicapped because they have no way of telling in advance for how long they may be at risk of legal proceedings. Where damage does not occur until long after the events giving rise to it, they are likely to be faced with the grave practical difficulties of contesting a very stale claim. Although the date of accrual is no longer—since the Pirelli case in the House of Lords — governed by discoverability, it still starts from the date of damage and it cannot be predicted when damage will occur.
The Law Reform Committee, in formulating its recommendations for reform, identified three principles which it described as being "of critical importance". They were, first, that plaintiffs must have a fair and sufficient opportunity of pursuing their remedy; secondly, that defendants are entitled to be protected against stale claims, although the sad truth is that no reform of the law can eliminate the factual uncertainties which are likely to arise in cases of latent damage; and, thirdly, that uncertainty in the law is to be avoided wherever possible.
The committee said that it would not find any proposal for reform of the law acceptable which failed in any significant respect to satisfy those criteria. Therefore, it recommended that the ordinary period of limitation of six years should be subject to a special extension which would allow the plaintiff three years from the date on which he discovered, or could reasonably have discovered, that he had suffered significant damage.
Secondly, the committee recommended that there should be a long stop which should operate to bar all negligence claims involving latent defects brought more than 15 years from the date of the defendant's breach of duty. The committee's remaining recommendations, although they are quite important, are essentially consequential upon its two principal recommendations.

Mr. Eric Forth (Mid-Worcestershire): Will my hon. and learned Friend tell the House at some stage in his remarks whether he is satisfied that the interests of potential defendants in such cases will be sufficiently safeguarded by the proposals? I have in mind professional people, such as architects, one of whom has approached me about the matter. They are worried that their possibility of obtaining liability insurance will be minimised or even reduced to almost zero precisely because of the potentially open-ended nature of their liability under these proposals, as the 15-year limitation runs only from the date of discovery. Therefore, an architect may find that a fault is found many years after he has designed a building, and 15 years after that he will still be liable. Can my hon. and learned Friend satisfy my constituent and me that my constituent has any hope of obtaining effective professional liability insurance under these proposals?

The Solicitor-General: I acknowledge that there are genuine anxieties about obtaining insurance for liability for latent defect, and they were expressed to the Committee which gave them serious consideration. There is a problem. If I am asked whether the interests of architects are sufficiently well protected, my reply is yes, in the context of the necessity to balance the interests of


architects and others engaged in the construction industry on the one hand, and the interests of consumers on the other. As I said at the beginning the committee said that this was an exercise in balancing conflicting interests, and I believe that that exercise has been satisfactorily achieved.
The 15-year override represents a new element in the law. As my hon. Friend knows, delay can extend, perhaps for 20 years before damage occurs, but under existing law, the architect or defendant is liable. At least that uncertainty is terminated by the 15-year override.

Mr. James Couchman: Is my hon. and learned Friend aware of the concern that has been expressed by a number of professional people that the 15 years can follow someone well into retirement and that even a widow may be saddled with the responsibility of her late professional husband within the 15 years?

The Solicitor-General: Indeed, I am aware of that and the committee expressly took that circumstance into account in its report. I should correct my hon. Friend the Member for Mid-Worcestershire (Mr. Forth), who said that the 15-year time bar derived from the date when the damage was discovered. That is not the case; it derives from the date of the defendant's breach of duty.
While insurance was not within the remit of the Law Reform Committee, it considered that the question of insurance should be considered by an appropriately qualified body. The Building Economic Development Committee is at present investigating the desirability and feasibility of latent defects protection insurance for non-residential buildings. Its work is taking fully into account the interests of building owners and producers, and we are awaiting its conclusions with the greatest of interest. Its work is being based on a report entitled: "Latent defects in buildings: An analysis of insurance possibilities" prepared by Atkins Planning. It is a substantial document.

Mr. Michael McNair-Wilson: There seems to be a certain inequity, since under the long-stop situation somebody who retires at 65 could still require professional indemnity insurance up to the age of 80, whereas a person who faces the same sort of problem but who still has several years of active working life ahead will be able to meet the indemnity more easily. Is the Solicitor-General satisfied that we should treat everybody the same, regardless of age? Perhaps in the case of those who are retired, we should limit the period to one more brief than 15 years.

The Solicitor-General: I can see an advantage in that from the practitioner's point of view. However, I can see no advantage at all for the customer or the client. I have no doubt that these matters will be taken into account in the course of the examination that I have mentioned. They are important and far from simple matters.
As I said, the committee's remaining recommendations are essentially consequential on its two principal recommendations. The committee concluded that its recommendations should be of general application and not confined to any specific area of activity, such as building, or class of litigant, such as house purchasers. I have explained in general terms the scope and scheme of this measure. It is confined to the tort of negligence. It does not attempt to deal with limitation under other heads of tortious liability, such as a breach of statutory duty or nuisance, nor is it concerned with matters, substantive or

procedural, arising out of contract. It is confined to what the Law Reform Committee referred to in paragraph 4.4 of its report as the
relatively narrow band of 'negligence cases involving latent defects'".
The scheme is as follows. Clause 1 inserts two new sections into the principal Act, the Limitation Act 1980. New section 14A is what might be called the plaintiffs provision. It provides a special time limit for negligence actions where facts relevant to the cause of action are not known at the date of the accrual. It provides for a period of six years from the actual occurrence of the damage, which is the normal rule, or three years from the date on which the plaintiff knew or ought to have known of facts about the damage if that period expires later, within which he can institute proceedings.
New section 14B is the main defendant's provision. It provides the long stop. It prevents the institution of proceedings after 15 years from the date of the defendant's original breach of duty. The effect of the long-stop is to bar the plaintiff's remedy. It does not extinguish his right of action. It vests a defendant with the right to rely on the defence of limitation even where the plaintiff still does not know that he has suffered damage. This is because there does come a time beyond which the Government and the Law Reform Committee consider it becomes unjustifiably onerous to require potential defendants to preserve their records and to remain exposed to the uncertainties and difficulties of responding to stale claims in respect of long-past incidents.

Mr. Forth: I crave the indulgence of my hon. and learned Friend. I am a layman in these matters, as some of my hon. Friends have been kind enough gently to point out to me. If an architect makes a fault in the design of a building and that fault is discovered 16 years later, does that absolve him from responsibility? Architecture is but one of the many professions involved in these cases. If the fault is discovered many years after the original design, does the 15 years run from that point or does the period start at the point where the faulty design work is carried out? I and my constituent would like to be reassured on that point.

The Solicitor-General: The period is taken from the date of the original breach of duty. The starting point for reckoning the 15 years, the overriding time limit, is from the date of the breach of duty and not from the date on which the damage is discovered. I hope that reassures my hon. Friend.

Mr. Simon Hughes: I should like to raise a different point about the starting date. There is still general anxiety that the accrual date for a cause of action might be difficult to define in certain circumstances. For example, one might not know whether the defect related to foundations laid in year one or year two of the building project. This might ultimately manifest. itself in a defect in a building. Is it possible to consider at a later stage, or has such consideration already been rejected, a definition that relates, perhaps, to the certified completion date of the building so that one can have a more precise layman's understanding of the date from which the cause of action starts to accrue?

The Solicitor-General: It would be possible to use the completion date. That was considered by the Committee and rejected for reasons to which I shall come in about 45 seconds, if I do not give way again.
The length and date of the long-stop period follows precisely the recommendations of the Law Reform Committee. On the length of the long stop, the committee considered a number of periods of different duration. At paragraph 4.13 of its Report, it observed that the long-stop should not be so long that it had no useful effect, nor so short that it would cause injustice. It said:
We have come to the conclusion that a period of 12 years, although it would probably work satisfactorily in most cases, might also bar some worthy claims. At the other extreme we think that a 20 year period might permit some very stale claims and expose many defendants to the risk of litigation for an unreasonable length of time. We have concluded that a 15-year period strikes the right balance between justice for plaintiffs and certainly for defendants".
The Government believe that the committee, looking at the matter from an entirely independent point of view, struck the right balance. The Lord Chancellor's Department consulted on the committee's report, and received conflicting responses, notably from those concerned within the construction industry and the appropriate professional bodies. Some commentators thought that the period was too short to be fair to plaintiffs. They suggested that nothing less than a 20-year period would be sufficient. Others have argued that the court should be empowered to exercise a discretion to permit claims after the 15-year period has expired, basing their argument on the discretion available to the courts to set aside the statutory time limit in personal injury cases. Others, with the interest of potential defendants in mind, argued that the proposed 15-years is too long. Some have suggested 12 years, others 10 or even six years. One group even suggested three months, which would at least have been a gesture.
As the Law Reform Committee recognised, the interests of potential plaintiffs and defendants conflict. Its conclusion was that the law required reform that would take care of the interests of both, which is bound to result in a compromise. We consider that the 15 years provides potential plaintiffs with a sufficient opportunity to pursue their remedy, but also provides the potential defendants with proper protection against really stale claims. It provides both with certainty, which the present law demonstrably lacks. It is not restricted to any one area or industry and covers the full range of possible instances of latent damage.
The starting date for reckoning the long-stop period has also been the subject of much discussion. The Law Reform Committee concluded that it should start to run from the date of the defendant's breach of duty. That is the effect of subsection (1) of new section 14B. Some have criticised this approach for its alleged uncertainty. An alternative suggestion that has been put forward on behalf of the construction industry is the date of completion of the building. The Law Reform Committee considered several alternative dates of commencement. Of the "date of completion" approach it said:
We are doubtful, though, whether this is really a satisfactory alternative and in particular we can see formidable difficulties in adapting the concept of completion to all the types of circumstances (other than personal injury) where latent damage might arise. There is also the possibility

of injustice to defendants where completion, on a very large project for instance, takes place many years after the relevant breach of duty.
It came down in favour of breach of duty. I need not develop further the basis for that.

Mr. Simon Hughes: rose—

The Solicitor-General: I wish to get on, and I have given way several times.
Clause 2, which is consequential on clause 1, adds a new section 28A to the 1980 Act. Subsection (1) gives additional protection to those who are under a disability at the time of discoverability. Subsection (2) disapplies the special time limits in new section 14A, and the long-stop in new section 14B, in negligence cases where the defendant has deliberately concealed facts from the plaintiff.
Clause 3 creates a fresh cause of action for the successor in title — he may, for instance, be a purchaser — who does not know and could not be expected to have known that the relevant property was already damaged when he acquired his interest. Time will run in future as if no transfer had occurred, but it will be treated as having started on the date when the original cause of action accrued. The balance is thus maintained.
The remaining provisions of the Bill are purely supplementary and do not require any elaboration at this stage.
This short but highly technical Bill will make for fewer hard cases, although it will not eliminate them, and for better law. I commend it to the House.

Mr. John Morris: I am sure that the thanks of the whole House go to the Solicitor-General for his careful exposition of the Bill. Our thanks also go — as did those of the Solicitor-General — to Lord Scarman and the distinguished members of the Law Reform Committee, upon whose 24th report the Bill is based.
Let me say immediately that I support the principles of the Bill, in the same spirit as Lord Silkin of Dulwich did in another place. The current mischief related by the Solicitor-General is dealt with by the Bill. Some may say that the Bill has gone too far, while others may say that it does not go far enough. However, the introduction of such proposals as are before us is not an exact science. To satisfy everyone would be simply wonderful, but, as the Solicitor-General said, this is a compromise Bill, with all the strengths and weaknesses of a compromise. That does not mean that necessarily I am satisfied with every proposal, and I shall return to some of them.
Although the Bill does not deal exclusively with causes of action in negligence arising from latent defects in buildings, it is in this area that the mischief primarily lay, and I prophesy that it is in this area that most advantage will be taken of it.
Defendants and their organisations are usually well organised, and there have been interventions in that vein. They are frequently insured and well able to take care of themselves. On the other hand, plaintiffs are one-off sufferers and frequently one-off litigants. I would have thought that Conservative Members would intervene on behalf of those who believe in a home-owning democracy. There has been none so far, but perhaps we shall hear interventions on behalf of greater and better protection for plaintiffs. I look forward to that.
The resources of plaintiffs are generally much more limited, and I shall not weep unduly if the balance is tilted more in favour of plaintiffs. On the other hand, as the Solicitor-General rightly said, the Bill brings certainty to defendants as well.
Nevertheless, I want to raise a real problem which I hope the Solicitor-General and the Lord Chancellor's Department will consider. It is a growing problem that will be considered more and more in due course, and it relates to the growth of claims for professional negligence. One is told that in some areas the practice of medicine is becoming increasingly more hazardous in the United States becaue of the substantial growth of negligence claims. Here in the last five years there has been a dramatic growth in personal claims for professional negligence, resulting in an increased cost of insurance premiums.
Where a claim is justified, every facility must be provided so that just claims brought in reasonable time are not denied justice, but we should be aware of the consequences, and the parallel that I shall pose has general application to the area with which we are now dealing.
If medicine ever became too expensive to practise because of the high cost of insurance, the bottom line of benefit to the public would be a minus figure. This is an extreme example. In the area with which we are now dealing — architecture in particular—claims running to millions of pounds can arise even after the death of the architect. Indeed, I understand that in one instance in Liverpool the widow of a notable architect was sued many years after his death. That is a matter that we must examine. The responsibility on accountants is becoming more onerous daily as one reads of the claims contemplated for huge amounts in litigation.
The repeal of the model Act in 1825, the passing of the Joint Stock Companies Act in 1844 and the eventual Limited Liability Act in 1855, were major milestones in the creation of modern society. I suspect that the concept of limited liability was not achieved without considerable growing pains. It certainly was the engine for the development of this country as an industrial nation and a world financial capital. If the principle of personal liability had been maintained — I am sure that there were good reasons—progress would have been stultified.
I raise this point now, against the background of the Bill. I believe that those who give professional advice should be responsible for that advice and should, in the case of negligence, be made to answer for it if damage is caused. Fortunately, well-ordered professions are insured. My profession certainly is and the costs can be recouped from a broad spread of clients. However, when a claim exceeds the insured amount, the result can break an individual's professional practice. Many professions, including mine, will not allow partnerships, let alone limited liability. Has not the time come to examine seriously limited liability for those who give professional advice?
As I said earlier, it is of no value to the public if professions become too hazardous to practise, or if because of one major claim dispensers of counsel are put out of business. It is of no benefit to the individual plaintiff if insufficient funds are available to meet his claim. It is of no benefit to him if the cost of insurance is so enormous that he has to pay through the nose for services. I believe strongly in taking responsibility for damage, wherever it occurs, but we must consider where we are going as regards quantum.
I endorse the principles behind the Bill. As the Solicitor-General said, plaintiffs must have a fair and sufficient opportunity to pursue their remedies. Secondly, defendants are entitled to protection against stale claims. Thirdly, uncertainty in the law is to be avoided where possible.
The countermanding of the wisdom in the cases of Sporham-Souter in 1976, Anns v. London Borough of Merton and similar cases by the Pirelli case, which was mentioned by the Solicitor-General, was not only a matter of great regret, but was little short of a catastrophe. The House of Lords in its judicial capacity, was right to say that it was time that this matter was looked into.
It needed this Bill to deal with that last decision, when it was held that the date of limitation arose when the cracks in the chimney first appeared, although no one had seen them, no one had been up the chimney and no one knew that they were there. This measure brings relief by adding to the provision that action may be brought. in addition to the present liability period, three years from the date on which the plaintiff knew, or should have known, about the damage—whichever is the later.
Of course, the Bill does not pretend to cover every case. Some will fall outside even this extension, but hopefully very few. A limitation in the 15-year long-stop period is now proposed. The case for that is the need for certainty. There must be some end—although it can be argued as to what should be the end — to the possibility of litigation. There is a dichotomy between the principle of certainty and the principle of fair and sufficient opportunity to bring an action.
I believe that the Committee has made a fair stab at the problem. However, I should have preferred it to examine, as has been done in other limitation areas, the possibility of some flexibility. This is a matter to which we may return in Standing Committee, to determine whether the proposed period is right, whether it is too comprehensive and whether some discretion should be exercised in the way in which it operates.
There were many important discussions — and we value them—in another place. Many amendments were tabled, especially by the noble Lord Hacking, who prosecuted many of them with great zeal. However. none of the total of 15 amendments moved in Committee or of the six on Report were accepted. It might be that we will not pursue all these matters in Committee, but we may wish to raise some of them especially the long-stop period.
At this hour of the night I do not propose to weary the House by going into any further details, save to repeat that while it is a compromise Bill, it is a fair attempt to put the law—certainly in one respect —where it was before and to bring certainty, which should be valued by defendants.
The noble Lord Denning said that this was a reforming Bill in a situation that was crying out for reform. I certainly support the spirit of the Bill.

Mr. Sydney Chapman: It may be helpful if I declare a possible interest. I am a non-practising architect, but I have been a member of the Royal Institute of British Architects for 26 years.
To judge from the remarks that have been made, it is. obvious that architects in particular and the construction industry in general are deeply affected by the provisions of the Bill. I welcome the principle of the Bill, which tries to strike a balance of fairness between — to use legal


jargon — potential plaintiffs, who, generally speaking, and in terms of the Bill, would be owners of buildings, and potential defendants, who could be not only architects, builders, subcontractors, specialists and civil engineers, but local authorities. They have responsibilities in the process of building, not least in inspecting the building works to ensure they are in accordance with the building regulations.
There is no doubt in my mind that there is a need for a change in the law on latent damage, because it is complex, obscure and uncertain, and has been for the past 10 years, principally as a result of a judicial decision known as Anns v. London Borough of Merton. Unfortunately, many people in the construction industry have concluded that the compromise solution—I accept that there must be a compromise — instigated by the Lord Chancellor's Law Reform Committee, whose proposals are clearly the basis for the Bill, leaves the law just as uncertain, complex and obscure, if not more so.
I shall say why I believe that to be the case. There are three themes to the measure. The first is that it is designed to retain the existing limitation of six years from the accrual of the cause of action, and it still leaves the courts to determine whether the cause of action accrues at common law. Secondly, the Bill decrees — this is my word — that there is a long-stop of 15 years from the date of the breach of duty. Thirdly, the plaintiff must bring his action within three years of what has been called "discoverability" — the word is not specifically mentioned in the Bill — of the latent damage. The Bill contains a lengthy and complicated definition of discoverability, which is taken from the law on damages for personal injury. I suggest that it is not helpful or relevant in respect of construction works.

Mr. Greg Knight: I am listening with interest to what my hon. Friend is saying. What does he find uncertain about the long stop provisions? Surely an architect knows that after 15 years any action is statute barred.

Mr. Chapman: I shall try to explain exactly what I mean. There seems to be no statutory definition in the Bill of breach of duty. I suggest that it is not as certain as lawyers seem to think. My hon. Friend will want evidence of that—not merely an assertion. Surely it is borne out by the series of judicial decisions handed down from and since the Anns v. London Borough of Merton case in 1977, which have instigated the need for the Bill. I do not believe that the Bill cures the problems contained in that series of judicial decisions.
I shall give an example. I ask my hon. and learned Friend to comment on it when he replies to the debate. I suggest that if there is deliberate concealment, another law seems to operate. The Bill excludes the provisions of sections 14(a) and 14(b) of the Limitation Act 1980 where there has been deliberate concealment of any fact relative to the plaintiff's right of action. On the face of it that seems to be reasonable, but it is not reasonable when one realises that the phrase "deliberate concealment" is defined in section 32(2) of the 1980 Act thus: "deliberate concealment—"
of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

With the greatest respect, in the context of construction works, with which the Bill is principally concerned, the majority of defect cases will fall into that category. That means that the criterion by which such cases will be decided will be that of discoverability, with all the uncertainty that that involves.
I want to persuade the House that I am not trying to make a special plea on behalf of my erstwhile profession, because I believe that it is just as much in the interests of prospective plaintiffs—the owners of buildings—that the law should be stated unequivocally, even if it involves rough justice on both sides. The one thing that an aggrieved plaintiff wants is a quick remedy at law, with compensation. I suggest that delay or legal arguments—which will be as great under the Bill's provisions as under present law—will not help plaintiffs in getting defects remedied quickly.
I should like to say also, because it is germane to the problem, that if the defendant—say, a builder—is not in business at the time the case comes up and the architect or civil engineer cannot afford the professional indemnity premium, the plaintiff does not receive damages. I stand to be corrected if I am wrong on that point. I understand that in recent years architects' premiums have soared. In many firms—I do not think that this is an exaggeration —those premiums exceed more than 10 per cent. of the gross fee income of the practice. That is the case, even for a firm which does not have a bad record or has had no claims laid against it. Hon. Members on both sides of the House will realise that, unlike in the motor insurance business, there is no such thing as a no-claims bonus being operable.

The Solicitor-General: I wonder whether it would help my hon. Friend if I dealt immediately with his point about concealment. He quoted section 32 of the 1980 Act, which is the relevant legislation, and argued that in the majority of cases the criterion will be discoverability. He said—I paraphrase his comments — that most of the matters complained of were unlikely to be discovered for a considerable time. The answer is that the key word in section 32(2) of the 1980 Act is "deliberate". The section states:
For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment".
Most of these cases amount to a breach of duty which is not deliberate. Where there is a deliberate commission of a breach of duty, it is justifiable that that should be categorised as deliberate concealment. I think my hon. Friend will find that that is not quite his point.

Mr. Chapman: I am immensely grateful to my hon. and learned Friend. I hope that he has reassured many people working in this field, at least on that matter. I have read the Lord Chancellor's Law Reform Committee report deeply and carefully. I realise that in paragraph 4.20 a number of points are advanced in relation to this matter. Equally, I know that my hon. and learned Friend will understand that I have been advised that the law would stand in the way that I have described. Perhaps that matter will be considered in more detail in Committee.
I apologise for keeping the House, but I should like to make a few more comments. A number of hon. Members have mentioned that an architect—or a civil engineer or any other design consultant—will face the prospect of


paying high premiums after retirement. Unlike other forms of insurance, one does not in this case insure the product for all time. The design consultant—whether he is the architect or the civil engineer or anyone else—can insure himself or his company only for a particular year. If a company has to pay more than 10 per cent. of its gross fee income, the penalty and financial obligation imposed on a person who has retired will be severe.
As I understand the operation of the law and judicial decisions, if a builder who is liable to have a claim made against him ceases business, that liability can and may be passed on to the architect. Therefore, the architect or perhaps the other design consultant seems to be liable, in the event of a builder going out of business, for the total liability and not just his possible part of it. I have to say, at the risk of meeting the opprobrium of the legal Members of this august Chamber, that statistics show that compensation finally paid to injured parties is substantially less than the income derived by the legal professon in dealing with a claim under these forms of latent damage.
The law must be a fair compromise in such cases. accept that absolutely, and it is in the interest of owners that it should be fair and reasonable to defendants. The British Property Federation, which of course cannot claim to speak on behalf of all owners of buildings, but can claim to speak on a substantial sector of ownership in the building industry, recognises that and states unequivocally that, above all, the law must be certain. Before 1977 and Anns v. London Borough of Merton, the accepted convention was a six-year liability from the completion of the job in contract or tort; unless the contract was under seal, when the liability under contract was for 12 years. Apart from the discrepancy between the 12 years and 15 years, which would leave matters undecided in at least certain contracts, I appreciate the endeavours of the Lord Chancellor's Law Reform Committee and the logic and propriety of the Government in presenting the Bill. However, I respectfully suggest to my hon. and learned Friend the Solicitor-General that the Bill should be amended in Committee.
I should like my hon. and learned Friend to confirm that, although he was right to point out the nuances and differences of the disparate parts of the construction industry—they could not initially agree on exactly how the law should be changed — there is now a consensus not only in the construction industry but it is shared by the British Property Federation. That view is that the most practical and fair solution to this difficult problem should be a long-stop, which is 15 years from the breach of duty, as provided in the Bill, or 12 years from the completion of the work. My hon. and learned Friend might say that the sting is in the tail because they recommend that it should either be the long-stop of 15 years or 12 years from the completion of the work, whichever expires first.
Many of us could argue that the long-stop should he reduced to 10 years, which, incidentally, is the proposal in the EEC document on product liability, or, for example —obviously I choose examples that are beneficial to the point I am trying to assert to the House — that the position should be 10 years as it is in France. The liability period, incidentally, is five years in Denmark. I believe that the consensus of the contruction industry and the British Property Federation should be the one that the Government earnestly and sympathetically consider.I

believe that it will cause fewer anomalies if that holds true, rather than the Government's proposals, and it is for that reason that I commend that proposal to the House.

Mr. Simon Hughes: I am grateful for the opportunity to substitute for my hon. and learned Friend the Member for Montgomery (Mr. Carlile), who would normally he in his place to speak on behalf of my party on measures of this sort. I am pleased to act as his junior. We share the view of the Solicitor-General and the right hon. and learned Member for Aberavon (Mr. Morris), who spoke from the Opposition Front Bench, that the Bill is one to be welcomed. We welcome the principle and, in substantial measure, the details of the Bill.
I shall start where the hon. Member for Chipping Barnet (Mr. Chapman) finished. The hon. Gentleman suggested that in seeking to achieve the fair compromise, which should be the right test, we should look to the British Property Federation. That suggests immediately a degree of unfairness in definition. As the Solicitor-General rightly said, we are seeking to find a compromise between two groups, the consumer, who will normally be the plaintiff, and the industry, which will normally be the defendant. I understand many of the arguments that the hon. Member for Chipping Barnet advanced, but it is inevitable that the British Property Federation. as any group representing a part of the whole of the industry, would be likely to see matters primarily through its own eyes.

Mr. Chapman: I was saying that the British Property Federation is the consumer in this instance. It cannot claim to represent all consumers, that is all the owners, but some of its members are developers and owners who commission builders to erect buildings.

Mr. Hughes: That I understand. The greatest inequity, inevitably, as the Solicitor-General said, lies as between the person who is in most instances a one-off plaintiff—someone who finds only once in his life that there is a defect in the building, whether he is a house owner, a property owner or a possessor of another property — and those who work in property for a living. In most instances the construction industry will be involved. Only a minority will involve professional negligence. In cases of commercial activity, occupation, profession and income, there are normally more available remedies in the form of insurance, to which the Solicitor-General has referred. than for the person who, only once in a lifetime, finds himself needing to challenge something with which the Bill concerns itself.
The attempt to find a balance is something that is prima facie best done by a body such as the Law Reform Committee. I join those who have already paid tribute to the committee. It is always good to see proposals made by such committees coming before the House. By their very nature they are impartial assessments that have been made on the basis of practicality by those with experience of dealing with practicalities. Those who comprise the Law Reform Committee and seek to propose reforms act through the eyes of those who have seen how the law works and not on behalf of the consumer alone or of the industry alone.
It is clear that the law was not working. There were occasions when people were impeded in taking rightful


action because they discovered that something had been done negligently at too late a stage, through no fault of their own. The Bill properly addresses all the issues that are relevant within the areas of tort and negligence. That was the diet on which I was brought up in my earlier existence as a lawyer outside the House before I became a Member of this place. Cases such as Anns v. London Borough of Merton were important tests in which it was established, or thought to be established, that someone could take a party to court—in the case to which I have referred, a local authority — and succeed where that party, or someone down the line from him, had been negligent in his professional duty. The same test applies whether one is talking about the building industry, which was one of the areas in which I used to work as a member of the Bar, or in terms of professional negligence. The same test applies because one is seeking to find a method of protecting people who may not be able to discover that what they were given by way of advice, or what they secured by way of agreement, was negligent until much later. Clause 1 allows for certainty, which is something that I have heard called for by Conservative Members. It states—the deadline is not too long—that actions will not be allowed more than six years after the date
on which the cause of action accrued".
It will be six years in some instances and three years in others. Those are certain and not very long periods. They will arise only when the facts relevant to the action were not known when the action accrued.
I must make the point to the Solicitor-General about the date and the definition of the course of action. He will appreciate that there is still some anxiety about that definition. Lawyers may be able to understand that definition easily, but it does not give certainty because, as the Solicitor-General will probably understand better than any other hon. Member, one of the purposes of the Bill is to achieve certainty throughout these matters. Although there may be long periods during a construction project when the period is sufficiently long to make another definition difficult, if we accept the suggestion that I made about the date set for completion there may be a possibility of dealing with that definition because there are often staged completion certificates in the larger building contracts. I hope that that question can be dealt with in Committee, to achieve certainty of definition as well as certainty of period, which I believe that the Bill has achieved.
The new section 14B causes some concern, as the hon. Member for Chipping Barnet made clear in his speech. It suggests a 15-year period overriding period. We properly have a duty to allay the fear of the lay community, which was expressed in the intervention of the hon. Member for Mid-Worcestershire (Mr. Forth). We are required to say that that is an absolute long-stop. It is important for people to know that if the period of 15 years passes, that is the limit and people may then sleep safely and soundly in their beds in the knowledge that they cannot be defendants after that period.
It is important that there should be a long-stop. If we are to consider guidance as to whether that long-stop should be 12, 15 or 20 years, we could probably best consider the advice of the committee that produced the proposals for the Bill. It is difficult and we are plucking a figure out of the air. There is no perfect figure. We are

trying to deal with the realities of experience. The Solicitor-General will know, and I recall from practical experience not just at the Bar, that there are often long delays before problems come to light.
Soon after I was elected, substantial defects were found on the Bonamy estate in my constituency. It was then too late for action to be taken through the courts against the architects, builders and developers by the local authority. That defect in procedure has cost the local authority a substantial sum of money. I pass no judgment as to whether the local authority should have discovered the problems before, but a period substantially less than the 15 years suggested in the Bill would not have been sufficient for the authority to act. Often if there are defects, especially in the foundations, it takes a long time for the evidence to come to light and for any one to be properly advised to take action. I urge the House to resist the suggestion to alter the period for a long-stop below 15 years before we have considered that and taken the independent, non-client-based advice of the Law Reform Committee.
When we consider the dates, we must also consider the practices in other countries. We should also consider the interlocking practicalities for the profession. One of these practicalities involves insurance and we have a duty to examine ways in which insurance can be provided properly. We should follow the Solicitor-General's suggestion that we should consult on the report that he mentioned and reach a conclusion.
It might also he useful to compare the growing practice of guarantees being given with buildings. I believe that I am correct to say the National House Building Council now has a 10-year guarantee period. If that is right, and the Bill goes through with a 15 year long-stop, the two ought to be married.
If someone deliberately conceals something, but not with the intention that it should be concealed for ever, that is sufficient mischief to come within the definition of deliberate concealment. We all know how things may be done when builders try to get around planning legislation. The mischief will come to light eventually. We must try to prevent that.
It is worrying that someone who retires at, for example, 60, should have to carry a liability into retirement, or have his estate or family carry one. The appropriate way around that is insurance. No doubt the right hon. and learned Member for Aberavon took out insurance in his chambers. That is now the norm for people who might be the recipients of a writ or legal action. There are mechanisms in trades and professions for picking up people who do not take out insurance. We should look to insurance to protect people who are not at fault, such as spouses. It should not be a sufficient argument against the principle that some people will not be in practice and therefore not earning enough to pay.
I hope that the Committee will examine the Bill carefully. I also hope that its principle, which comes from the independent proposal of the Law Reform Committee, will be accepted. That being so, we shall have achieved a fair compromise. I hope that the Government will give the proposal a trial period before giving in to any side's demands to compromise on a well-researched and sound proposal.

Mr. David Crouch: This will be rather more of a question for my hon. and learned Friend the Solicitor-Genera] than a speech.
I have studied closely all the reports of the proceedings of the other place in the Bill. I was enormously impressed by the wisdom and depth of the investigation made by so many Members of another place and by the extremely helpful and thoughtful investigation carried out by the Law Reform Committee under the chairmanship of Lord Scarman.
My question concerns what comes outside the Bill. Paragraph 1.6 of the Law Reform Committee's report refers to,
matters outside our terms of reference.
In studying the reports of debates in another place, I noticed that their Lordships concentrated on the problems arising in the construction industry, and especially in domestic houses. I am anxious about the problems of latent damage in the construction of industrial plants, and I am talking of buildings costing £10 million, £20 million, £50 million, £100 million or even more.
The British Chemical Engineering Contractors Association, which gave evidence to Lord Scarman's committee, is a group of about nine vast contractors, which build chemical plants in Britain and elsewhere. Those plants are extremely expensive. The contracts already contain many provisos concerning responsibility. How far does the Bill go in defining the liabilities of the constructors and operators of such plants?

The Solicitor-General: Just as much.

Mr. Crouch: That worries me, because it is an enormous responsibility. It is rather worrying for the industry that that should be so.
Their Lordships said much about the large-scale construction of dwelling houses, but nothing about the construction of steel or chemical plants. The contracts drawn up in those cases contain a clear division of responsibilities between contractors and operators of plants. A plant can go wrong because of maladministration by its management. That has been shown in famous cases, for example, in the nuclear industry. I do not mean Chernobyl, for we do not know what went wrong there; hut we know what went wrong at Three Mile Island. Not only the construction but the management of the plant was faulty. Where did the responsibility lie? How will this important Bill affect liability in this contentious area?
I do not wish to delay the House further, but this is an important point, and I hope that my hon. and learned Friend can give a clear assurance, if not now, in Committee, so that anxieties in the construction and operating sectors of the chemical industry can be allayed.

Mr. Neil Thorne: I declare an interest in this matter as a chartered surveyor and as a member of Lloyd's.
The right hon. and learned Member for Aberavon (Mr. Morris) asked Conservative Members to declare their interests in the plaintiff, and I wish to identify with the plaintiff in such matters. However, I am against greedy lawyers. We should not create another field day for them in this area. My hon. Friend the Member for Chipping Barnet (Mr. Chapman) was right to say that lawyers have

done well out of such claims. I was glad to hear that the right hon. and learned Gen tleman's branch of the legal profession has joined the rest of us by becoming liable for negligence in their sphere of activity.
The public must be properly protected. Nobody would disagree with the Government's aims in doing that. But it is also important that, in achieving that objective, they should not make it more difficult for the public to obtain professional advice at a resonable price. If, as the hon. Member for Southwark and Bermondsey (Mr. Hughes) mentioned, professional people are priced out of the market, they may try to recover their additional insurance premiums from their clients, which will add considerably to the cost, and also lead to fewer people being available to give advice.
I understand that in the United States, in some fields of medicine, doctors are having to withdraw their services completely because of the claims that are being made against them through the courts. That is a worrying situation and I hope that we shall not reach that stage in Britain.

Mr. Keith Best (Ynys Môn): I am most grateful to my hon. and gallant Friend for giving way. Although the old maxim used to be justitia magnum emolumentum est, I would make one plea on behalf of the lawyers. When my hon. Friend compares the position in the United States and here, I am sure that he is aware of the contingency fee basis in the United States and the fact that damages are determined by juries. As a member of Lloyd's — I declare my own interest—he will know only too well that that is the principal cause for alarm about damages awarded in the United States, not the system that we have here.

Mr. Thorne: I fully accept what my hon. Friend says. I would hate British law to get into that position. Nevertheless, my hon. Friend the Member for Chipping Barnet mentioned that already half the damages seem to go to lawyers in Britain, so goodness knows what must go to those in the United States. We certainly want to avoid that.
If a building is constructed by a contractor who acts negligently and 25 years later a defect is found, as I understand it there would then be three years in which the occupier or owner could make a claim. If the contractor had by that time gone out of business, presumably the person against whom action would be taken would be the designer or the architect or some other engineer. That would mean that there would be a claim perhaps 28 years after a building had been constructed. If that is the case, that could be well after the designer's death. Would his widow then be expected to sell her possessions, including her house, in order to satisfy some claim which had originated through some defective work by a contractor 28 years before? I should be grateful if my hon. and learned Friend the Solicitor-General could reassure me on that when he replies. If that is what we are suggesting, we should think long and hard before we put that into effect.
I should also be grateful if my hon. and learned Friend could advise the House whether in view of the liability which I believe has recently come to rest on the shoulders of some local authorities—they have been found to be involved in negligence claims if it was thought that their building inspectors were not carrying out their work properly — they would also be similarly involved and have some commitment.
The point that has been made about the enormous cost to a retired person is important. Certainly, if 10 per cent. of the gross fees have to be laid out in insurance payments, and if that is to be continued for at least 15 years after retirement, I would also like an assurance that the architect or designer could get tax relief, if nothing else, upon that payment. I had heard that that was a source of great concern to professional people: that they could not offset their insurance payments for that reason.
In Committee I hope that it will be possible to consider the question whether or not, after 15 years, it would not seem more reasonable to place the matter on the shoulders of the insuring company of the builders. After such a period, it would be right and proper to expect insurance to be covered by building insurance, particularly in view of the complexity which is likely to arise and the hardship which could be caused, especially to individuals not practising under limited liability.
The right hon. and learned Member for Aberavon said that the professions should be moving towards limited liability. That has started in one or two professions and I am sure that the move will be extended in the coming years. It could smack of a desire to exonerate oneself from the liability that has traditionally rested on the shoulders of professional people. I would not wish the Government's action in this measure to force professional people in that direction. That would be a great mistake. I await my hon. and learned Friend's reply with interest.

Mr. Greg Knight: The right hon. and learned Member for Aberavon (Mr. Morris) was a little unkind when he implied that Conservative Members were concerned only about the interests of potential defendants. We are interested in ensuring that as far as possible justice is done.
During the debate it has become clear that the present law causes injustice both to potential defendants and to plaintiffs and that action is need to rectify the problem. Such action involves a balancing act between three points. First, the plaintiffs must have a fair opportunity to pursue their remedy. Secondly, the defendants are entitled to be protected against stale claims. Thirdly, as far as possible uncertainty in the law is to be avoided. By and large the Bill achieves that balance, so I support it.
However, I wish to express my disappointment that the Bill does nothing about the matter raised by Lord Hacking in another place in respect of the accrual point for the periods of limitation. One difficulty that exists for lawyers and potential litigants alike is that different actions have a different starting point for the limitation period. In other words, the clock starts to run at different points for different actions, even on the same set of facts.
I shall not enlarge upon all the differences because I sense that the House wishes to make progress. However, I refer my hon. and learned Friend to the comments of the Law Reform Committee. Paragraph 44 on page 16 states:
In cases involving negligence, a plaintiff's cause of action might accrue at different dates depending upon whether the negligence was in the performance of a contractual duty, or a statutory duty or a duty of care at common law and this can lead to complications. Indeed a single set of facts could in theory give rise to claims for breach of duty under all three heads, with three limitation periods. This situation was criticised by a number of those who wrote to us. Our terms

of reference on the other hand are limited to the relatively narrow band of 'negligence cases involving latent defects' and we consider that it would he quite inappropriate for us to make general recommendations, applicable for instance in the contract field, in the context of the present review.
That is a slight disappointment to me and I hope that, perhaps in Committee, some consideration can be given to rectifying this problem. Having said that, I welcome the measure and especially clause 3 which rectifies a longstanding problem and will enable successors in title of the original victim to inherit the cause of action. This rightly continues to be actionable only within the original limitation period and is still subject to the longstop provisions. Having expressed the minor disappointment that the Bill does not go further, I welcome the measure.

Mr. Roger Moate: I do not know if there can be such a thing as a lawyer's paradise, because that may be a contradiction in terms, but a lawyer's paradise is an apt description of the Bill. As the House might know, there was an earlier Parliament from which lawyers were banned. The legal profession rather rudely called it the unlearned Parliament and, I think, the fool's Parliament. The layman is a fool if he trespasses on such legalistic ground as this Bill. I prefer the term drunken Parliament. That referred to a Parliament which met for only about eight days and passed hardly any legislation. It met in Glasgow and perhaps that explains the title.
Despite the fact that laymen might look at the Bill with some trepidation, there is no doubt that it could have a widespread effect on consumers and producers alike and, indeed, upon the whole community. The effects of the legislation may be quite different from those envisaged by my hon. and learned Friend the Solicitor-General and the other Law Officers. This type of legislation has a widespread effect and will have some unexpected results over many years in commerce and in the construction industry and upon the way consumers will act. For that reason, I regret that we are debating the Bill at a rather extraordinary hour, a point with which my hon. and learned Friend the Solicitor-General might well sympathise. The speeches by hon. Members show the interest in this legislation.
I recognise the need to remove by statute uncertainties in the existing law. As many of us know, over the years some court cases have taken the law in one direction while others have taken it in the opposite direction. It must be difficult for practitioners in businesses associated with matters of this kind to know with any certainty what the law will be in the future and it must be right in principle to have clarification of the law and to improve it.
The present law can be grossly unfair to a claimant who might well find himself beyond the limitation period before he is even aware that he has an actionable claim. In that respect the law ought to be amended. The right hon. and learned Member for Aberavon (Mr. Morris) was a little unfair to Government Members when he said that we were simply supporting the case of the producer. That is certainly not correct. There is a recognition that the law needs to be remedied.

Mr. John Morris: I was not being unfair. I was merely passing judgment, perhaps with a measure of partisanship, on the interventions that had occurred up to that time.

Mr. Moate: The right hon. and learned Gentleman should have refrained from passing judgment until he had


heard the wise speeches from other hon. Members. The interests of the consumer and the producer are not as far apart as perhaps he suggests. Under these proposals, many years after fulfilling a contract or supplying a product a defendant might be the subject of a claim of which he has little or no knowledge, and about which he may have inadequate records. It is also probable that he will not have any insurance protection. Although I welcome certain principles in the Bill, I have to express serious doubts about whether the Government have got it right.
In essence, I can see the case for allowing the plaintiff the extension of the ordinary period of limitation of six years, with that additional three years from the date when he discovers, or could reasonably have discovered, that he has sustained a loss. I have not read or heard any disagreement with that proposition.
That extension in itself is dramatic. It imposes an immense burden on the producers of goods such as builders, manufacturers and any providers of any service, or upon the insurers. That is where I declare my interest. Even if it were just six years as at present, an additional three years, would he a major extension. For that reason, I argue strongly that the 15-year longstop is far too long. I dispute the contention of my hon. and learned Friend the Solicitor-General that, somehow, 15 years represents a proper balance between the producers and the consumers.
By extending the limitation period by the three years —I accept that that is an over-simplification—we are already substantially tilting the balance against the producer. By then putting in a longstop, we are going too far. That is not a balance, but simply a little less unbalanced. For my hon. and learned Friend to say that some suggested 10 years and some 20 years, and that the Government stuck at 15 is simply plucking figures out of the air. This is a matter of judgment, but to go from what was in the past understood to be a limitation of six years to 15 years will strain at the bounds of commercial reality.
I also question whether we are doing the consumer a favour. Obviously we shall be doing some individuals a favour, because some will be able to make claims that would otherwise be time-barred. However, are we doing the consumer in general a favour? Are we benefiting the community'? I doubt it. I can illustrate this point through the insurance profession, with which I have sonic connection. The problems of insurance are not just of some minor inconvenience or expense, or even of considerable expense to consumers. They have a profound affect on consumers, prices and employment. It is possible, by over-protecting the consumers, that we shall damage not only the community but those consumers.
Hon. Members have already referred to the malpractice suits in the United States, which are literally putting some doctors and dentists out of practice. More relevant to this country is that many British manufacturers cannot export their products to the United States because of the difficulty of getting liability insurance. It we encourage that trend here in the United Kingdom, which I suspect we are doing by opening the doors that bit wider, we are making it harder for manufacturers to manufacture, and builders to build.

Mr. Peter Thurnham: As I understand it, it would be relatively simple for the purchaser of a 10-year-old house to take out an insurance policy against there being some defect in it, whereas the burden to the contracting industry of provisions to cover

a 15-year period could add more to the cost of the house than taking out a simple insurance policy. Can my hon. Friend advise me on the initiative taken by the National Economic Development Office concerning such insurance? I have heard of this initiative, but not of any results.

Mr. Moate: I welcome the point made by my hon. Friend. If one is seeking to protect the home owner—I accept the genuineness of the points made by Labour Members — one does not necessarily do it in what I would call a rather naive way by simply extending the period of limitation to allow individuals, in theory, to be able to pursue a house builder, estate agent or solicitor who might, decades after the building of the house, no longer be around. Alternatively, if he is, it might be extremely difficult for the home owner to take action successfully.
Frankly, it sounds good but it is naive. If one is really trying to protect the home owner, one should not do it by widening the law in this way. Instead, one should look for specific remedies of the sort that have been referred to. I suspect that there is much better protection for the home owner through schemes such as the NHBRC and specific insurance than by this fairly unsatisfactory opening of the floodgates of the law.

Mr. Best: Is not the inevitable conclusion of my hon. Friend's remarks that there should be compulsory insurance? If so, in fairness he should state it. That must follow from his remarks unless there is to be some protection for a potential plaintiff. My hon. Friend should look more carefully, not at the 15-year longstop but at the fact that there is a three-year stop for a plaintiff once he knew, or ought reasonably to have known, of the defect.

Mr. Moate: I am certainly not arguing the case for compulsory insurance. I am saying that it is unrealistic to pretend that one is protecting home owners simply by extending the period of limitation. That is not a real argument in favour of the Bill. I am not sure whether I follow my hon. Friend's point In effect there will be an opportunity for an individual to claim after six years, as at present, but if he does not discover the loss he has sustained until the fifth or sixth year, he then has three years from that date up to a maximum of 15 years. I am simply saying that a shorter period than 15 years is realistic.
Let me emphasise further just how much insurance difficulties can impinge upon the value and quality of the goods and services enjoyed by the consumer. Today, many substantial practices seriously question their ability to survive in business, faced as they are with the enormously high insurance premiums that are now being quoted. None of us can really foresee the future, but if awards become substantially greater—that seems to be the trend in the Western world—premiums get higher, and the insurance market contracts, many substantial companies or partnerships will not be able to get insurance. We can already see the effect of that on commercial activities in the United States, even on British companies acting in the United States, and we do not want to see it happen here.
That relates only to the large practitioners, and hon. Members—particularly the hon. Member for Southwark and Bermondsey (Mr. Hughes)—have glibly dealt with the question of insurance. A large number of people are single practitioners, and there is virtually no way in which


they will carry on insurance for 15 years after they have retired, be they estate agents, architects, solicitors or surveyors. In reality they will not do it—nor, I suspect, will most barristers maintain a 15-year run-off insurance after they have ceased practice.

Mr. Simon Hughes: There is a very practical answer to that. During the time of professional work one should insure against claims in the period of 15 years after one ceases to work, and the payment can be made during one's professional life.

Mr. Moate: The hon. Gentleman misunderstands the nature of the business at the present time. Because of the examples that exist around the world, most insurers are trying to retreat from that long-tail type of business and to curtail their exposure during that period of time. Increasingly, great difficulties will arise.
I am not saying that there should not be a long period during which claimants can claim. We have already accepted that. But I am saying that 15 years is too long, and we have a better example that we should be considering. I do not often quote with favour examples from the European Economic Community but when I do it obviously proves a good point. The EEC directive on product liability sets out a ten-year limitation. I ask my hon. Friend seriously to consider that ten years is six, plus three, plus a little more. That is as good as any period, and better than most suggested. It is a considerable extension of the present law and gives a certainty that will be helpful to all involved. I urge the House not to gloss over the difficulties which the longer period would entail for many in industry. I do not think that the longer period would confer on the user the benefits in which my hon. Friend believes.
In principle I welcome the Bill. I hope that the House will treat it seriously and consider the many representations that it is likely to receive.

Mr. Andrew Hunter: The debate generated by this five-and-a-half page Bill is relatively confined. The salient points have already been made many times. Had I caught your eye earlier, Mr. Deputy Speaker, I should have tried to make many of the points covered so eloquently by my hon. Friend the Member for Chipping Barnet (Mr. Chapman). I endorse, applaud and support all his arguments.
The debate has concentrated on two simple factors. The right hon. and learned Member for Aberavon (Mr. Morris) said that we should remove uncertainty from the law. Of course we must. The question is whether the Bill will do that. When considering the time factor I support my hon. Friend the Member for Faversham (Mr. Moate). We should examine carefully the 10-year precedent established by the Common Market.
We have concentrated upon clauses 1 and 2. I want to discuss clause 3. Clause 3, according to the explanatory memorandum,
enables a person acquiring real or personal property to bring an action for negligence where the property concerned is in fact (but unknown to him) already damaged when he acquires it.
This might seem technical, but I wonder whether the clause will prove to be something of a minefield,

intentionally or unintentionally. It enables those owners of houses in the categories listed in the Housing Defects Act built privately, and therefore not covered, to seek redress. The negligence referred to in clause 3 may not extend to defective housing as defined by the Housing Defects Act. That might be significant.
The Committee on the Bill will have a lot of work to do. It is a worthwhile Bill, but fundamental questions will have to be explored.

Mr. Peter Thurnham: I hesitate to speak about such a legal matter, but I must declare an interest in that I am not a member of Lloyd's, I am not a lawyer, but in my limited spare time I am an engineer and I pay lawyers' fees. My hon. and learned Friends describe the Bill as a compromise and the right hon. and learned Member for Aberavon (Mr. Morris) said that he wanted to tip the balance towards the plaintiffs. I wonder whether it is in the interests of either potential defendants or plaintiffs if the balance is tipped towards lawyers.
As someone who has to run a business and decide what has to be done, I am anxious about the number of records that might have to be kept and stowed away for an excessive time from a starting point which is not at all clear.
I should declare a fuller interest in that I am a Fellow of the Institute of Mechanical Engineers, a member of the Electrical Contractors Association for many years and a recent adviser. My own business, which I founded in 1972, now employs 500 people in specialist engineering contracting. My company has had a long involvement with the committee dealing with specialist engineering contract law.
I was intrigued last week to find that my daughter, whom I am supporting while she studies law at King's college, had my company's case come up in her first-year examinations because an injustice that I had suffered had been put right by a change in the law. I was pleased to hear that. It cost £7,000 in legal fees to pursue a £1,500 contract without success in the Court of Appeal. I was told that I should go to a higher court, but I decided that I had had enough of the law.
We all agree that the present law is unjust — it is unfair to plaintiffs and defendants. The principles of the new law are much to be welcomed, and three years from discovery is obviously to the benefit of plaintiffs. I raise the practical question whether 15 years is not too excessive a period, because the breach of duty is a rather difficult period to determine for a practising contractor. Exactly what date should he put on his documents? I feel that 15 years is excessive, especially as the EEC is talking about 10 years.
I wonder whether the Solicitor-General can enlighten me as to who the members of the Law Reform Committee are. I suspect that they are all lawyers, but perhaps I am wrong. As lawyers, they say that 12 years might bar some worthy claims but would probably work satisfactorily in most cases. They say that a 15-year period probably strikes the right balance. They are seeking to strike a balance of legal niceties and are losing account of the practical realities of people who have to run businesses and decide how to deal with claims that go back such a long time.
I agree with many of the points made by my hon. Friend the Member for Faversham (Mr. Moate), who might be interested to know that I rang the British Insurers


Association today to discuss its view on this matter. It said that it welcomes the introduction of a long-stop, but thought that 10 years would be more practicable. If the insurers who will have to help contractors say that 10 years would he practicable, I question why the Government feel that they should go so far beyond 10 years in seeking to strike some nebulous balance in favour of the plaintiffs, who, one hon. Member said, were not organised and needed to be borne in mind. If we burden consumers with excessive costs to strike some nicety of legal balance, we will not do the people of this country a favour.
At a time when the Government say that they are cutting red tape, I earnestly ask them to reconsider whether a period as long as 15 years is in the interests of business, especially as we are seeking to find jobs for 3 million unemployed. Will it get more people back into the job market to impose a 15-year period when a lesser period has been advocated by so many who have spoken this evening, and when consumers can gain protection by taking out an insurance policy at, I suspect, a much lower cost?

Mr. Greg Knight: I know that the House wishes to make progress, and I hesitate to rise. Is my hon. Friend really suggesting that the House should encourage jerry-builders?

Mr. Thurnham: I think that my hon. Friend would agree that if a building has stayed up for 10 years it would not be too difficult for the owner or purchaser of that building to take out an insurance policy to indemnify himself against any defects that might arise. If no defects have occurred in the first 10 years, I cannot believe that it would be difficult for him to take out insurance to cover himself. To suggest that someone is not a jerry-builder if there is nothing wrong in 15 years, but is a jerry-builder if something goes wrong in 10 years is a rather silly distinction, if I may say so, without being disrespectful.
On the one hand, we are arguing about political judgments as to whether the period should be 10 or 15 years and, on the other, we are asking architects and others to keep massive records and access to those records for 50 per cent. longer. For what purpose should we burden the industry with those costs? It is for no purpose other than to satisfy a few lawyers that they were doing the right thing from a legal point of view, and perhaps some political judgments which were arrived at too quickly and without proper attention to the costs that would be incurred.

The Solicitor-General: I express my gratitude for the welcome that has been given by the right hon. and learned Member for Aberavon (Mr. Morris) to the Bill. I thank hon. Members for their kind remarks regarding the work of the Committee.
I think that the House has moved some distance from an understanding of the concept of negligence. We are talking about provisions to deal with the limitation of actions arising from negligence — negligence by those responsible for turning out a product containing a latent defect. Negligence means failure to take reasonable care in all the circumstances. For the consumer, who is the victim of negligence in those circumstances, that means not getting what he has paid for, not being able to recognise that at the time, and having to carry the can unless he can have a remedy in the courts.
Most hon. Members' constituents would wish to have a remedy in the courts in those circumstances. The law, as it stands, gives them a remedy, and it is a remedy without time, to the extent that they may bring an action provided they are within the statutory period of limitation starting from the date when the damage occurred. If a builder uses concrete which turns into Stilt on cheese after 20 years. it is only from 20 years that the statutory limitation period starts to run. The law at present makes a builder liable—this is the answer to the question by my hon. Friend the Member for Ilford, South (Mr. Thorne) — and vulnerable to an action for damages provided it is brought within six years from that date—20 years after he built the house which turns into Stilton cheese.
What the Bill does in the interests of the defendants —the builders—in those circumstances is to say, "In no circumstances may an action be brought 15 years after the date of your breach of duty, your negligence, your failure to take reasonable care." Those who have inveighed against the hardship occurring to defendants—if the Bill is enacted—have not fully understood that point, I feel. Perhaps we shall have an opportunity in Committee to demonstrate a little more clearly how that is actually a benefit to defendants in such circumstances.
The right hon. and learned Gentleman raised the issue of limited liability. I think that I should limit my own liability by informing him that I have noted his suggestions carefully and will bring them to the attention of my right hon. Friends, without any commitment whatsoever.
For many months and indeed years my hon. Friend the Member for Chipping Barnet (Mr. Chapman) has displayed great interest and knowledge in these issues. I am grateful for his welcome of the principle of the Bill. I was sorry that he found so much to criticise in it. When he said that it contained no statutory definition of breach of duty, he was seeing a tiger where no real difficulty exists. The concept of negligence is well understood. The definition of discoverability has occasioned no real difficulty. I dealt with my hon. Friend's anxieties at the time in connection with the concealment provision.
My hon. Friend the Member for Chipping Barnet apparently believes that the architect becomes liable if the builder who is a subcontractor goes out of business. I am able to reassure my hon. Friend and others who have raised that issue. It is not true to say that an architect will be responsible for the negligence of the builder where the latter becomes bankrupt. As a matter of general principle, a person who arranges for work to be done for him by an independent contractor is not liable for the negligence of the contractor in the course of carrying out the work, provided, of course, that he has taken reasonable care to choose someone who is suitable. But an architect who is held only partly to blame for a defective building cannot be held fully liable simply because another defendant has gone bust. Nor can an architect who would not otherwise be held liable be liable because someone has gone bust. That is also the answer to part of the question raised by my hon. Friend the Member for Ilford, South.

Mr. Chapman: Surely the point is that the role of an architect is not only to design the building but to a certain degree, to supervise and overlook its construction. If the plaintiff cannot sue—if that is the right legal word—the contractor, inevitably he sues the architect, as he is advised


to do, to try to make out a case that the architect did not supervise the job properly, even though there was a liability on the builder to construct the building properly.

The Solicitor-General: If the architect were liable at all, he would be liable whether or not the builder was also liable.
I say yes to the suggestion of the hon. Member for Southwark and Bermondsey (Mr. Hughes) that there is no special magic about 15 years. However, it represents, in the views of the Government and the Law Reform Committee, a reasonable compromise between those who want 20 years, such as the Consumers Association and many others, and those who would like 12 years or fewer. I agree; let us see how it works.
My hon. Friend the Member for Canterbury (Mr. Crouch) asked whether the Bill's provisions will apply to chemical works. The answer is yes. But we are dealing with latent defects, not with questions of management and with someone who sets the wrong temperature at Chernobyl, or whatever. We are talking about latent defects in the construction of premises. The Bill is not limited to the construction of housing.
In the rather elaborate illustration posed by my hon. Friend the Member for Ilford, South, a person discovers 28 years after work has been completed that there is something wrong. There would be a complete bar to his bringing any action, because such an action cannot be brought any later than 15 years after the breach of duty. I shall certainly not at this stage embark on questions of tax relief for insurance premiums. I expect that my hon. Friend knows more about it than I do.
I appreciate the welcome given to the Bill by my hon. Friend the Member for Derby, North (Mr. Knight). One will have a reasonable chance of successful law reform if

one limits one's objectives. It is not the point of the Bill to interfere with the law relating to accrual of a cause of action. My hon. Friend the Member for Faversham (Mr. Moate) thinks that that will have unsuspected results, although he recognises that the law is unfair to plaintiffs. I am grateful to him for his fair speech in that regard. I must say, with respect, that my hon. Friend confused questions of limitation with questions of liability. At present, the date of accrual is the date when the damage first occurred—15 years from the date of breach of duty is a restriction on the liability to which a building constructor may be subject.

Mr. Thurnham: Will my hon. and learned Friend give way?

The Solicitor-General: I should like to finish. Of course I shall give way if my hon. Friend insists, but we all want to proceed.
Those who say that this is bad for the consumer because insurance premiums will increase seem to be saying that it is easy for the consumer to take out an insurance policy to cover the risk. If it is easy for the consumer to do that, I do not see why it becomes impossible, in terms of price, for the contractor or architect to do so. All of these matters can be gone into in more detail in Committee. It will obviously be an interesting Committee.
This has been a Second Reading debate and I choose to get from this debate a general welcome for the effect of the Bill, which is to reduce the injustice of the present law and strike a fairer balance between the conflicting interests of the construction industry and those who buy its product. I commend the Bill to the House and I hope that it will get a Second Reading.

Question put and agreed to.

Bill read a Second time and committted to a Standing Committee pursuant to Standing Order No. 42 (Committal of Bills).

Crown Agents (Amendment) Bill

Not amended (in the Standing Committee) considered.

Bill reported, without amendment.

Motion made, and Question proposed, That the Bill be now read the Third time.—[Mr. Raison.]

Mr. Stuart Holland: The waiving of interest in international development is not something that we wish to oppose. provided the case is right, that it is merited in development terms and that it is subject to the scrutiny and approval of the House. The question is whether the House will have such scrutiny and powers of approval, since clause 1(b) deems that section 17(10) of the Crown Agencies Act 1979 shall cease to have effect. Perhaps the Minister could elaborate on the case for that. On what grounds is it unduly burdensome on the House that it should not have the power of section 17(10) of the original Act? After all, in the Second Reading Committee on 18 December the Minister said that he could not
predict to what extent the power will need to be used."—[Official Report, Second Reading Committee, 18 December 1985; c. 4.]
On those grounds, why can the right hon. Gentleman be so sure that no order should be laid before the House and approved by resolution of the House?
We all know the background to the financial difficulties of the Crown Agents—the property speculation of the early 1970s, followed by a cleaning of the stables, only to he followed by the loss of the Brunei contract and the knock-on effect on development financing of other projects which that has entailed. Why is there to be no reference to the House in the future? It is not as if we still have a Select Committee on Development which could supplement the Floor of the House by giving such scrutiny as will be denied by the deletion of section 17(10).
In the Second Reading Committee the Minister failed in his winding-up speech to answer one of the three main points that I put to him on the question of finance. It is relevant to the question of waiving interest. My question was whether there would be any obligation on the Crown Agents to become a licensed deposit taker. We would be glad to know the Government's views on that matter.
I also raised with the Minister the question whether the 50:50 joint ventures with Lloyd's were a liability to the agents. At that time, 18 December, he said that they were not. Is he so satisfied today?
I congratulate the Minister on his decision to retain the pensions division of the Crown Agents within the Overseas Development Administration. We were pleased that he could see delegations on that matter before the decision, and glad that the decision was made. May we have an assurance from him tonight that the provision in the Bill for waiving interest is designed to serve the continuing work of the agents as a public body, rather than a backdoor to privatisation, through reducing costs and raising returns to the agents over and above what they would otherwise be? That is something on which we should have an answer now.

Mr. A. J. Beith: I welcome the decision affecting the staff at the pensions division at East Kilbride, to which the hon. Member for Vauxhall (Mr. Holland) referred. This is an issue that has attracted much

attention during the long period during which the Bill has been before the House. It has been before us since December 1985, and one would imagine that it has been the subject of the most intensive and lengthy Committee consideration. Those who have followed it closely will know, however, that its consideration has been brief and widely spaced.
As I understand the Government's intentions, the Bill is a holding operation. Its function is to enable the work of the Crown Agents to continue and some of their difficulties to be met in a period during which the Government intend to proceed to make the Crown Agents a privatised concern. This was hinted at by the hon. Member for Vauxhall, when he said that the Government might have changed their mind. As I understand it, it is still the Government's intention to proceed to privatisation. The Bill will simply hold the fort until then. The stage will be reached when its provisions are no longer relevant and the Crown Agents will become a privatised concern, thereby losing a status that is necessary for their relationship with Commonwealth Governments, many of whom are accustomed to working through Government agencies for much development work and who expect an organisation such as the Crown Agents to have Government status.
Confidence in the Crown Agents has inevitably been shaken by the experiences of recent years. I am not. satisfied that turning the body into a private corporation will assist the rebuilding of confidence and help to enable it to play as full a part as it can undertake in development work in which the Government are engaged and in the activities of other Commonwealth Governments.
On behalf of the alliance, I welcome the Bill as far as it goes. I welcome the opportunity that it gives the Secretary of State to continue to assist the Crown Agents to enable them to provide the useful function which was impaired for a number of years but which they can still undertake in the work of Commonwealth countries.

The Minister for Overseas Development (Mr. Timothy Raison): The Bill was given a Second Reading and considered in Committee without opposition, although there was a certain amount of discussion. I am happy that Third Reading has been reached. I have been asked one or two questions, to which I shall respond, but I do not think that the House wishes to be detained for very long at this hour.
It is our intention that the Crown Agents should continue to move towards privatisation. We hope to see the organisation strengthened and we believe that it is becoming a stronger body under the excellent leadership that it has received from the chairman and those who are responsible for its management. As I have said, I hope that this will lead to privatisation.
I am grateful for the support that has been given to the Government's decision on the pensions division, which has been widely accepted. I believe that the House was in sympathy with what was done.
I have been asked one or two specific questions. First, the hon. Member for Vauxhall (Mr. Holland) asked about licensed deposit taking. Sections 5 and 8 of the Crown Agents Act 1979 give the Crown Agents authority to accept deposits in respect of their agency activities. While they continue to operate under the Act, the authority will remain valid. When they are privatised and cease to be a


statutory body, financial arrangements will have to be made for the privatised company to conform with the requirements of the relevant Acts on the acceptance of deposits or pre-payments. The present situation does not require any further action.

Mr. Stuart Holland: The financial effect of the Bill will make it possible for interest of about £10 million due to the Exchequer to be waived. We know that the Crown Agents have been paying interest at rates that are less than the full market rate. If the Minister is really saying that the Government are proceeding to privatisation, will he give the House an assurance that any such £10 million, which amounts, in effect, to a public subsidy, will be paid back by those to whom the sale in privatisation is undertaken? It will be a public subsidy of the private sector otherwise.

Mr. Raison: I do not think that the House will expect me at this stage to anticipate the legislation that will bring about privatisation in due course. When that step is taken, a Bill will come before the House in the proper way and it will receive full discussion in the House.
Questions were asked about clause 1(b). This provision deletes section 17(10) of the 1979 Act, which, as a consequence of the amendment to section 17(9), becomes superfluous. Section 17(10) requires that any order extending the original initial period from five years to seven years should be laid and approved by resolution of the House. As I have said, that now becomes superfluous.
I believe that the Bill is an important advance and that the Crown Agents are doing a good job. The Bill gives them a further chance to do that, and I commend it to the House.

Question put and agreed to.

Bill accordingly read the Third time, and passed.

Dogs (Control)

Motion made, and question proposed, That this House do now adjourn.—[Mr. Donald Thompson.]

Miss Janet Fookes: The House will be aware of my long-standing interest in matters affecting animal welfare, and I rise now to inquire about Government policy on the control of dogs.
The debate has been sparked off by two recent occurrences. The first was the widespread reports that the Government intended to abolish the licence fee for dogs, although I understand that no such decision has yet been made. It was also sparked off by the investigations of the television programme "That's Life" into the scandal of puppy farms.
I would first like to give a brief sketch of the problems relating to dogs and then to give a short summary of the measures that animal welfare groups have taken in the past and also to offer a package of proposals for the Government's urgent consideration.
The scale of the problem of dogs is staggering. It is estimated that there are some 6 million dogs at any one time in Britain and half of those are unlicensed. That is a highly unsatisfactory state of affairs, although it is not surprising in view of the very low licence fee of 37p. I am not surprised that the Public Accounts Committee has commented on the absurdity of that, as it is costing far more—about £3 million more—to collect the licence fee than the revenue obtained.
The problem of stray dogs is especially distressing. I am closely linked with the RSPCA and the National Canine Defence League. I also know a fair amount about the work of Battersea dogs home and the work of local cats and dogs homes in Plymouth. According to the latest annual report, the RSPCA dealt with 103,000 abandoned or stray dogs. However, the RSPCA estimates that that is a measly 20 per cent. of the full number of such unfortunate animals. Half the cruelty cases dealt with by the RSPCA inspectors relate to dogs.
The stories that we hear about abandoned dogs are heart-rending and it is unfair to expect the animal welfare societies to put so much time, effort and money into a problem which the Government ought to tackle. However, apart from the dogs themselves there is the problem caused by dogs that are out of control and which cause a nuisance in society. That problem is especially worrying when it affects livestock. The National Farmers Union has recently suggested that there are about 10,000 cases a year of livestock which are killed or seriously injured by the depredations of dogs out of control — for example, in sheep worrying. There is also the problem of the fouling of pavements, beaches and parks, which understandably causes public outrage.
I am glad that my right hon. Friend the Prime Minister has embarked on a campaign against litter. I suggest that dog fouling is a particularly offensive form of litter and my right hon. Friend would undoubtedly welcome any enforcement of the law on fouling.
There is also over-production of puppies, often in horrendous conditions. That was the subject of the "That's Life" programme. Miss Rantzen has been kind enough to send me a dossier, which I will pass on to my hon. Friend the Minister, outlining some of the cases which were seen on the programme. I am told that, following the


programme on puppy farms, hundreds of letters and telephone calls were received from viewers—some 500 by the time that I received the dossier, but I gather that more were coming in each day.
Today newspaper has also made its own investigations, which would repay further study by the Minister. Many people have bought puppies from puppy farms, only to find that the poor little creatures are very sick and have a miserable and short life. They frequently die, perhaps after the owners have spent a great deal of money on veterinary bills. Many of the problems arise from the non enforcement of the Breeding of Dogs Act 1973. It ought to be tightened up. On re-reading it, I noticed that local authorities, which are responsible for licensing breeding establishments, may inspect them. I suggest that they should have a duty to inspect them before a licence is granted and that there should be far more follow-up visits than there appear to be.
No longer do we want dogs to be subjected to so much disease and infection and the likelihood of being separated from their mothers far too soon. Anyone who, like me, saw the Esther Rantzen programme will have been horrified by the details that were revealed. They were familiar to me as I work in animal welfare, but I think that, for many members of the public, it was a terrifying insight into the difficult conditions in which some animals are born into the world.
The problem is not new. In 1973, so difficult were the problems relating to dogs that an organisation which rejoices in the name of JACOPIS—the Joint Advisory Committee on Pets in Society—was set up. It produced a comprehensive report in 1975, which was followed by a report by the Department of the Environment in 1976 which bore a remarkable resemblance to the proposals made by JACOPIS. There was an attempt at a private Member's Bill in 1982, and conditions in Northern Ireland were so serious that the Government introduced an order at the end of 1983 which contained many of the principles which were advocated by JACOPIS.
The efforts that have gone into producing a different set of proposals for dealing with dogs have quite a long history. I hope that the Government will not suggest that they need much more time to consult, investigate and the rest — the standard excuse for doing nothing. Forgive me, Mr. Deputy Speaker, if I sound a little cynical, but one gets used to Governments saying that they need more time when they are trying not to make any decision at all.
I should like now to consider the package of proposals which I should like the Government to adopt. The control of stray dogs and the law relating to dogs generally should be placed entirely in the hands of local authorities, and not with the police, who have other and more important tasks than dealing with stray dogs. There should be a mandatory dog warden system in each district. The duties of dog wardens would not be simply the obvious ones such as dealing with strays. They would include advising the public of their duties, being generally helpful and ensuring that the law is enforced, including that concerning the fouling of footways.
To make that possible, there should be a substantial increase in the present ridiculous licence fee. Although the Public Accounts Committee wishes to end the fee entirely, I believe that it should be increased to £5 or £10. The licence would have to be bought on the acquisition of the dog or when the dog reached the age of four months, whichever is the sooner. It is important to stop impulse

buying, and if the acquisition of the licence must come at that point, and it costs substantially more than it does now, it might deter people from buying animals without sufficient thought. As one welfare society says, one has a dog not simply for Christmas, but for life.
Furthermore, it would be desirable to reduce the licence fee for any animal that was spayed or neutered to discourage the overproduction of animals and thus reduce the stray dog population. The Government might wish to consider exemptions for working dogs or for needy retirement pensioners. That would be possible under the scheme that I suggest. As a means of enforcement, I suggest that every dog should wear a disc, which would be not only a form of identification but a sign that the licence fee had been paid. It could even be colour-coded so that one could see at a glance whether the licence was current or out of date.
If sufficient funds were available through an increased licence fee, one could ask local authorities to undertake much more inspection of breeding establishments, pet shops, puppy supermarkets and the like, and enforce the conditions which exist theoretically, on paper, but which are too often flouted, as we saw from the "That's Life" programme.
I do not expect my hon. Friend the Minister to give me definitive answers on all those points tonight, much though I would wish it. But I must tell him that the patience of the animal welfare organisations with which I am connected is running out, and my patience is nearly at an end, because we have made constructive proposals for many years but still the Government are stalling. For this purpose, it does not matter whether they are Labour or Conservative Governments. Both have been united in shilly-shallying and failing to take positive decisions.
I hope that the Government will give serious and urgent thought to the points that I have made in this brief debate, remembering the long history of decisions made by the animal welfare organisations about what might be practical and prudent. My request is in no way unreasonable. It is clear that we have a serious problem of too many dogs coming into the world, many of them leading a miserable existence, and the welfare societies almost having to clear up the mess that should be dealt with by the Government.
Britain is still free from the dread threat of rabies, but it must be an ever-present worry to all those concerned with the disease. It would be far easier to cope with rabies if we had fewer animals wandering round unwanted and if there were far greater controls through licensing and enforcement and a proper dog warden service. I hope that, if nothing else, it will make the Government think carefully about the proposals that I have made, which I warmly commend to my hon. Friend and to the House.

The Parliamentary Under-Secretary of State for the Environment (Sir George Young): I begin by paying tribute to the work that my hon. Friend the Member for Plymouth, Drake (Miss Fookes) has done, both in the House and outside, for animal welfare. She has been a prominent member of the parliamentary animal welfare group and also a past chairman of the Royal Society for the Prevention of Cruelty to Animals. As she referred to tonight, she is also vice-president of the Joint Advisory Committee on Pets in Society, which brings together many important and influential organisations with an interest in


the control and welfare of dogs. Dog owners, dog interests and indeed dogs are fortunate to have such a formidable champion available to them. My hon. Friend has put forward this evening an eminently sensible manifesto, which is no less than I would have expected from her.
I apologise to my hon. Friend for the absence of my hon. Friend the Member for Mitcham and Mordern (Mrs. Rumbold), who takes a particular interest in canine matters within the Department. She has slipped her leash and is in Luxembourg for a European Community Council of Ministers meeting. Indeed, all Ministers in my Department who have any interest in dogs seem to have fled the country. My hon. Friend the Member for Surbiton (Mr. Tracey), the Minister with responsibility for sport, who I assume looks after greyhounds, is in Mexico, where his presence has had the desired stimulus on the English football team, and the Minister for Environment, Countryside and Local Government, my hon. Friend the Member for Bristol, West (Mr. Waldegrave), is also in Europe.
I make it clear at the outset that the Government have taken no final decision on the future of dog licensing. My hon. Friend the Member for Drake referred to speculation in the press a few weeks ago that the Government intended to abolish the licence. That is one possible course open to us, but I stress that a final decision has yet to be made and before we do so we shall consider carefully what my hon. Friend has said tonight.
I understand my hon. Friend's feeling of impatience, indeed cynicism, at the length of time that it has taken to reach a decision on the future arrangements for the licence. There is, as my hon. Friend said, a large measure of consensus between a number of the very influential bodies concerned with dogs, their welfare and control. However, as the failure of successive Governments to take any action perhaps shows, it is not that simple.
The path ahead is not free of hazards and the Government are anxious not to tread on them. The issues are indeed complex and span the responsibilities of a number of Departments. Some of the courses involve primary legislation, which might be time-intensive and we are anxious to find the right conclusion before we embark on that process.
The arguments are not about the end to be achieved but about the means to achieve a happier co-existence between dogs and society. It is easy for the arguments to be seen in terms of dog-lovers against dog-haters. In fact, few people, whether or not they are fond of dogs, would deny that owning a dog can bring benefits in terms of companionship, comfort and security, particularly to those living alone and to the elderly. It can add a new and enjoyable dimension to family life and teach children a sense of responsibility to dependants. Dogs have an important role to play in the police, sniffing out drugs and explosives, and they are of benefit to the blind and the deaf.
On the other side, there are those who are concerned about dog nuisance. They are in fact concerned about the irresponsible owner who allows his dog to stray, to hark for long periods, to foul public places or to run uncontrolled intimidating others, or who keeps a large dog in a city in a restricted space and with inadequate exercise.
It is the same irresponsible owner who causes suffering and distress to his dog. The strays that my hon. Friend

talked about are frequently not well-cared-for animals. The real villain of the piece is the unthinking, uncaring owner. It has been said with some justification that there are no bad dogs, only bad owners.
What are the options? As my hon. Friend has said, the current licensing arrangements are absurd. The Government bear the Post Office's charge for issuing licences, which in England and Wales amounts to some £3·5 million and substantially exceeds the revenue that local authorities receive of about £0·9 million. On the grounds of financial prudence alone, some change is clearly called for.
We acknowledged that in our consultation paper. The criticism has been made, as my hon. Friend said, by the Public Accounts Committee and the Select Committee on the Environment and we said in our paper, that the present situation does not allow any Government who value good administration to do nothing.
We issued a consultation paper which set out three main options — a simple increase in the licence fee, giving local authorities discretion and the abolition of the licence. The response was not conclusive.
Many organisations and individuals have argued to us, as my hon. Friend has, that an increased licence fee would provide funds for local authorities to devote to dog welfare and control measures. Our postbag leaves us in little doubt of the strong feelings which many people have about the dirt, nuisance and fright which can be caused by dogs which are not properly controlled, and my hon. Friend highlighted concern about the welfare of strays.
On the other side of the argument, there are those who feel that it would be wrong for individual dog owners to bear the financial burden of dog control. They argue that the vast majority of dog owners are responsible, care for their pets properly, and prevent them from being a nuisance to others. It is a minority, who would not in any case purchase a licence at a higher cost than at present, who are irresponsible. Some suggest that the number of strays might even increase, were there a higher licence fee, since more dogs would be abandoned. The value of a dog as a companion or protector carries with it the suggestion that some groups might find the cost of a higher licence fee particularly difficult to find, and my hon. Friend suggested some exemptions.
The message to emerge is that there is real concern about the control and welfare of dogs. What is not so clear is how the Government might best tackle these problems and bring to an end the absurdity. My hon. Friend put forward one strategy tonight. We are aware of the views of the joint advisory committee which she has outlined. My hon. Friend the Member for Mitcham and Morden will shortly have the benefit of meeting a deputation from the advisory committee to hear the views of its constituent organisations at first hand. It would be completely wrong not to take seriously the experience and wisdom of those in the front line of caring for dogs, such as local authorities, vets and the RSPCA, which do such important work in dealing with strays and in many other fields.
However, the thought I wish to leave with my hon. Friend is that a higher licence fee is not the only way in which concern about control of dogs and dog nuisance can be met. The Government would need to reflect carefully before abolishing the licence without taking some positive steps to ensure that local authorities and other agencies can carry out the valuable work they already perform in relation to dogs. The importance attached to this by local


authorities is shown by the number—almost 200—which already provide a dog warden service for important educational as well as enforcement purposes. I understand that they would welcome the additional revenue that an increased licence fee would provide.
However, there are administrative costs with any licensing system and it can he argued that scarce resources should not be diverted from tackling the problems directly by educating owners in their responsibilities and dealing with the consequences of the irresponsible minority's thoughtlessness. I repeat that no decision on the future of licensing has yet been taken. However, we shall not ignore the concern about dog nuisance when we come to that decision.
My hon. Friend mentioned the fouling of parks, pavements and so on. As I represent an urban constituency. I am aware that this is a genuine issue. It has been estimated that a dog population of 6 million produces 1 million gallons of urine and 1,000 tonnes of faeces daily.
There are already substantial powers available to local authorities for controlling the nuisance and annoyance that dogs can cause. My right hon. Friend, the Home Secretary is the confirming authority for such byelaws. At present a district or borough council can make byelaws which make it an offence for a person to allow his dog to foul footways or designated grass verges. Many authorities have adopted those byelaws.
Byelaws may also be used to ban dogs from enclosed recreation grounds which are in need of special protection, such as children's play areas, sports pitches and ornamental gardens. There are also bans which apply to certain areas of the beach during the summer months. These byelaws are carefully examined before they are approved to ensure that dog owners are not unfairly discriminated against.
A further power which is at the moment under examination is the so-called "poop-scoop" byelaw, which requires owners to clear up after their dogs when they foul public places. A pilot scheme has been running since September last year in four areas including, appropriately, the London borough of Barking, to test the effectiveness of the byelaws. The results are encouraging. Final conclusions cannot be drawn until the end of the trial period in September and then the Home Office will examine the working of the scheme and publish a report. If, as seems likely, the byelaws prove successful, it should be possible to offer these powers to other local authorities.
My hon. Friend mentioned puppy farms and I was distressed to hear her account of the poor conditions in which dogs are apparently being kept and sold by certain establishments covered by the That's Life programme and this week in the newspaper Today. The regulation of breeding and pet-selling establishments is a matter for my right hon. Friend the Home Secretary, and I shall call to his attention the dossier my hon. Friend mentioned in her speech. I understand that so-called puppy farms will be subject to local authority licensing under either the Breeding of Dogs Act 1973 or the Pet Animals Act 1951.
The Breeding of Dogs Act requires that any person keeping more than two bitches for the purpose of breeding for sale should be licensed by the local authority which must satisfy itself that certain standards of health, welfare and accommodation are met. Any person running a

business selling animals as pets must also be licensed by the local authority under the Pet Animals Act 1951. Appropriate conditions can be attached to a licence, which may include a condition about the age at which animals may be sold. That is a major concern in the cases to which my hon. Friend has referred.
There are extensive powers of entry and inspection in relation to premises covered by the Acts I have mentioned and I suggest that anyone who has reason to believe that dogs are being reared and kept in had conditions should. take up the matter with his local authority. As a further safeguard, the Protection of Animals Act 1911 makes it an offence to cause unnecessary suffering to any domestic or captive animal. I can well understand the widespread concern that these reports have caused, and will ensure that my hon. Friend's comments are relayed to my colleagues at the Home Office. Our view is that legislation provides suitably flexible controls over the breeding and sale of dogs, but we shall look at the suggestion by my hon. Friend that "may" might be replaced by "shall".
My hon. Friend spoke about strays. Responsibility for strays rests with the police and my hon. Friend suggested that the matter should be transferred to local authorities. The many and varied demands on police manpower and resources today mean that the police are not always able to give this as high a priority as they, and we, would wish. However, this is a matter for each chief officer of police who has operational responsibility in his force area. Voluntary organisations also play an important role in dealing with strays, as my hon. Friend knows. The requirement in the Control of Dogs Order 1930 for a dog on a highway or public place to wear a collar with the address of the owner inscribed on the collar or an attached plate can be a help in tracing owners.
If I am unable to deal with all the matters raised by my hon. Friend, such as livestock worrying and attacks on people, and rabies, I shall write to her. My hon. Friend mentioned Northern Ireland, where there is a £5 licence fee. We have, of course, kept in touch with experience of these arrangements, but it has long been recognised that the situation in the Province, especially in relation to strays and livestock worrying, is more serious than in Great Britain. I do not think it necessarily follows that what is appropriate for Northern Ireland is appropriate elsewhere.
I also appreciate my hon. Friend's interest in the possible role of a licensing system if an outbreak of rabies should occur. I am advised that dog licensing would have little or no relevance to the actions which would have to be applied in the event of a rabies incident here. We have drawn up contingency plans to deal with this. As I say, my understanding is that although it is under review, a licensing system is not of direct application.
My hon. Friend's concern about dog licensing may well have been heightened rather than allayed by what I have said. I can give her the assurance that the Government are fully apprised of the points she has made and of the widespread anxiety that undoubtedly exists about dog control. I hope that it will be possible to announce a decision about dog licensing in the very near future.

Question put and agreed to.

Adjourned accordingly at twenty three minutes past One o'clock.